<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997
REGISTRATION NO. 333-36305
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ATLAS AIR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <C>
DELAWARE 4731 84-1207329
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
538 COMMONS DRIVE
GOLDEN, COLORADO 80401
(303) 526-5050
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
RICHARD H. SHUYLER
SENIOR VICE PRESIDENT -- FINANCE,
CHIEF FINANCIAL OFFICER AND
TREASURER
ATLAS AIR, INC.
538 COMMONS DRIVE
GOLDEN, COLORADO 80401
(303) 526-5050
(Name, Address, including Zip Code, and Telephone Number, including
Area Code, of Agent for Service)
with a copy to:
STEPHEN A. GREENE, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
ATLASAIR LOGO
ATLASAIR LOGO
OFFER TO EXCHANGE ITS 10 3/4% SENIOR NOTES DUE 2005,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ITS 10 3/4% SENIOR NOTES DUE 2005, WHICH HAVE NOT BEEN REGISTERED
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON DECEMBER 4, 1997, UNLESS EXTENDED.
---------------------
Atlas Air, Inc. (the "Company"), a Delaware corporation, hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $150,000,000 aggregate principal amount of its new
10 3/4% Senior Notes due 2005 (the "New Notes"), which have been registered
under the Securities Act of 1933 as amended (the "Securities Act"), for a like
principal amount of its outstanding 10 3/4% Senior Notes due 2005 (the "Old
Notes"), which have not been so registered. The terms of the New Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions relating to the Old Notes. The New Notes will evidence the same
indebtedness as the Old Notes and will be issued pursuant to, and entitled to
the benefits of, the same Indenture that governs the Old Notes (the
"Indenture"). As used herein, the term "Notes" means the Old Notes and the New
Notes, treated as a single class.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on December 4, 1997
unless extended (as, and so extended, the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange pursuant to the Exchange Offer. The Exchange Offer is
subject to certain other customary conditions. See "The Exchange Offer."
The New Notes will bear interest from and including the date of
consummation of the Exchange Offer. Interest on the New Notes will be payable
semi-annually in arrears on each February 1 and August 1 of each year,
commencing February 1, 1998, at the rate of 10 3/4% per annum. The New Notes
will mature on August 1, 2005. Interest on the New Notes will accrue from the
last interest payment date on which interest was paid on the Old Notes
surrendered in exchange therefor or, if no interest has been paid on the Old
Notes, from the date of original issuance of the Old Notes. The Notes will be
redeemable, in whole or in part, at the option of the Company, on or after
August 1, 2001, at the redemption prices set forth herein, plus accrued interest
to the date of redemption. In addition, at any time on or prior to August 1,
2000 the Company, at its option, may redeem up to 35% of the aggregate principal
amount of the Notes originally issued with the net cash proceeds of one or more
Public Equity Offerings (as defined), at a redemption price equal to 110.75% of
the principal amount thereof plus accrued interest to the date of redemption;
provided that at least 65% of the aggregate principal amount of the Notes
originally issued remains outstanding immediately after any such redemption.
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 9, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES
IN THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is November 5, 1997.
<PAGE> 3
The New Notes represent general unsecured obligations of the Company
ranking pari passu in right of payment to any existing and future unsecured
senior indebtedness of the Company. The New Notes will be effectively
subordinated, however, to all secured indebtedness of the Company and to all
indebtedness of the Company's subsidiaries. As of June 30, 1997, on a pro forma
basis after giving effect to the Offering (as defined) and the Refinancings (as
defined) and the application of the proceeds thereof, the Company would have had
approximately $595.0 million of consolidated secured indebtedness outstanding
and the Company's subsidiaries would have had approximately $370.3 million of
indebtedness outstanding.
Upon a Change of Control (as defined), each holder of the Notes will have
the right to require the Company to repurchase such holder's Notes at a price
equal to 101% of the principal amount thereof plus accrued and unpaid interest
to the date of repurchase. In addition, the Company will be obligated to offer
to repurchase Notes with the net cash proceeds of certain asset sales at a
purchase price equal to 100% of the principal amount thereof, plus accrued
interest to the date of repurchase.
The holder of each Old Note accepted for exchange will receive a New Note
having a principal amount equal to that of the surrendered Old Note. Old Notes
accepted for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer. Holders of Old Notes accepted for exchange
will not receive any payment in respect of accrued interest on such Old Notes.
Old Notes not tendered or not accepted for exchange will continue to accrue
interest from and after the date of consummation of the Exchange Offer.
The Old Notes were issued and sold on August 13, 1997 (the "Offering") in a
transaction exempt from the registration requirements of the Securities Act and
may not be offered or sold in the United States unless so registered or pursuant
to an applicable exemption under the Securities Act. The New Notes are being
offered hereunder in order to satisfy certain obligations of the Company
contained in the Registration Rights Agreement (as defined). Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holder's business and such holder has no arrangement or understanding
with any person to participate in a distribution of such New Notes. However, the
Company has not sought a no-action letter with respect to the Exchange Offer and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Each holder of Old Notes,
other than a broker-dealer, must acknowledge that it is not engaged in, and does
not intend to engage or participate in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period ending on the close of business on the 180th day following
the Expiration Date (as defined herein), it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. In the event
the Company terminates the Exchange Offer and does not accept for exchange any
Old Notes, the Company will promptly return the Old Notes to the holders
thereof. See "The Exchange Offer."
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. The
Company has been advised by the Initial Purchaser (as defined) that it intends
to
ii
<PAGE> 4
make a market for the New Notes; however, the Initial Purchaser is not obligated
to do so, and the Company does not currently intend to list the New Notes on any
securities exchange. Any market-making may be discontinued at any time, and
there is no assurance that an active public market for the New Notes will
develop or, that if such a market develops, that it will continue. This
Prospectus may be used by the Initial Purchaser in connection with offers and
sales of the New Notes which may be made by it from time to time in
market-making transactions at negotiated prices relating to prevailing market
prices at the time of sale. The Initial Purchaser may act as principal or agent
in such transaction.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM CONSULTANT'S
REPORTS AND INDUSTRY PUBLICATIONS. INDUSTRY PUBLICATIONS AND CONSULTANT'S
REPORTS GENERALLY STATE THAT THE INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED
FROM SOURCES BELIEVED TO BE RELIABLE, BUT THAT THE ACCURACY AND COMPLETENESS OF
SUCH INFORMATION IS NOT GUARANTEED. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED
THIS MARKET DATA.
Old Notes in the aggregate principal amount of $150 million were issued
originally in global form (the "Global Old Note"). The Global Old Note was
deposited with, or on behalf of DTC, as the initial depository with respect to
the Old Notes (in such capacity, the "Depository"). The Global Old Note is
registered in the name of Cede, as nominee of DTC, and the beneficial interests
in the Global Old Note are shown on and transfers thereof are effected only
through, records maintained by the Depository and its participants. The use of
the Global Old Note to represent certain of the Old Notes permits the
Depository's participants, and anyone holding a beneficial interest in an Old
Note registered in the name of such a participant, to transfer interests in the
Old Notes electronically in accordance with the Depository's established
procedures without the need to transfer a physical certificate. Except as
provided below, the New Notes will also be issued initially as a note in global
form (the "Global New Note", and together with the Global Old Note, the "Global
Notes") and deposited with, or on behalf of, the Depository.
iii
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the New Notes
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the New Notes offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto. Any statements made in this Prospectus concerning the
provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement otherwise filed with the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, the exhibits forming a part thereof and
such reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, Seven World Trade
Center, 13th Floor, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60601.
Copies of such material can be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains an Internet Web Site at
http://www.sec.gov that contains reports and other information. The Company's
common stock is traded on the NASDAQ National Market System under the symbol
"ATLS" and reports, proxy statements and other information concerning the
Company can be inspected at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Company has been approved
for listing on the New York Stock Exchange and expects to begin trading on
November 11, 1997 under the symbol "CGO".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K (the "Form 10-K") for the fiscal
year ended December 31, 1996, its Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997 and its Current Report on Form
8-K dated September 30, 1997, each of which has been filed with the Commission,
are hereby incorporated in this Prospectus by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer contemplated hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for all purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, on
the written or oral request, a copy of any and all of the documents incorporated
in this Prospectus by reference, other than exhibits to such documents not
incorporated by reference therein. Requests for such copies should be directed
to Atlas Air, Inc., 538 Commons Drive, Golden, Colorado 80401 Attention: Chief
Financial Officer (telephone (303) 526-5050).
iv
<PAGE> 6
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included or incorporated by reference in this Prospectus
constitute "forward looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, levels of activity, performance or
achievements of the Company, or industry results, to be materially different
from any future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. In addition,
forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe", or "continue" or the negative thereof or
variations thereon or similar terminology. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed under "Risk
Factors" and elsewhere in this Prospectus, including, without limitation, in
conjunction with the forward-looking statements attributable to the Company, or
persons acting on its behalf, are expressly qualified in their entirety by the
Cautionary Statements.
As a result of the foregoing and other factors, no assurance can be given
as to the future results and achievements of the Company. Neither the Company
nor any other person assumes responsibility for the accuracy and completeness of
these statements.
v
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
data, including the financial statements and the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, references
to the "Company" or "Atlas" shall mean Atlas Air, Inc., a Delaware corporation,
and its subsidiaries. In addition, references herein to "747-400 aircraft" means
the Boeing 747-400F freighter aircraft.
THE COMPANY
Atlas is the world's largest air cargo outsourcer, with an all Boeing fleet
of 747 freighter aircraft. The Company provides reliable airport-to-airport
cargo transportation services throughout the world to major international air
carriers generally under one-to-five-year fixed-rate contracts which typically
require that the Company supply aircraft, crew, maintenance and insurance (the
"ACMI Contracts"). The Company's customers currently include, among others,
China Airlines Ltd. ("China Airlines"), KLM Royal Dutch Airlines ("KLM"),
Lufthansa Cargo AG ("Lufthansa Cargo"), British Airways World Cargo ("British
Airways"), Scandinavian Airlines System ("SAS"), Emirates Airline ("Emirates"),
Thai Airways International Public Company Limited ("Thai Airways"), Fast Air
Carrier, S.A. ("Fast Air") and Lineas Aereas Suramericanas, S.A. ("LAS"). The
Company is able to provide efficient, cost-effective service to its customers
primarily as a result of its productive and flexible work force, the outsourcing
of a significant part of its regular maintenance work on a fixed-cost basis and
the advantageous cost economies realized in the operation of its fleet,
comprised solely of Boeing 747 aircraft which are configured for service in
long-haul cargo operations.
The Company's fleet currently consists of 22 Boeing 747-200 freighter
aircraft in service and two 747-200 passenger aircraft under lease to a third
party. On June 9, 1997, the Company entered into an agreement with Boeing to
purchase 10 new 747-400 aircraft to be powered by engines acquired from the
General Electric Company ("GE"), with an option to purchase up to 10 additional
747-400 aircraft. The 747-400 aircraft has significantly longer range, greater
payload capability, lower maintenance costs and increased fuel efficiency
compared to the 747-200 freighter aircraft. The Company expects to place the
747-400 aircraft in service with both existing and prospective customers, who
the Company believes should be willing to pay higher ACMI Contract rates to
achieve operating benefits derived from the unique performance capabilities of
the 747-400 aircraft.
747-400 AIRCRAFT ACQUISITION
On June 9, 1997 the Company entered into an agreement (the "Boeing Purchase
Contract") with Boeing to purchase 10 new 747-400 aircraft to be powered by GE
engines. The 747-400 aircraft are currently scheduled to be delivered as
follows: 4 in 1998, 2 in 1999, 3 in 2000 and 1 in 2001. See "Risk Factors --
Availability of 747-400 Aircraft Financing; Delivery Delays." The Boeing
Purchase Contract also provides the Company with an option to purchase up to 10
additional 747-400 aircraft for delivery from 1999 through 2002. The Boeing
Purchase Contract requires that the Company pay deposits to Boeing prior to the
delivery date of each 747-400 aircraft (the "Pre-Delivery Deposits") in order to
secure delivery of the 747-400 aircraft and to defray a portion of the
manufacturing costs. The Company expects that the maximum total amount of Pre-
Delivery Deposits at any time outstanding will be approximately $125 million,
approximately $95.2 million of which was paid as of September 22, 1997 by the
Company from short-term indebtedness and available cash.
The proceeds from the Offering of the Old Notes and cash flow from
operations were used, among other things, to repay short-term indebtedness
incurred by the Company to pay Pre-Delivery Deposits and will continue to be
used to make additional Pre-Delivery Deposits as they become due. As the 747-400
aircraft are purchased upon delivery and Pre-Delivery Deposits are refunded by
Boeing, the remaining proceeds from the Offering of the Old Notes may be used to
fund a portion of the total purchase price of the 747-400 aircraft or,
alternatively, for general corporate purposes by the Company. Additional
third-party financing will be required
1
<PAGE> 8
at the time of delivery of each of the 747-400 aircraft. The Company intends to
secure such permanent financing from a combination of aircraft financing
transactions, including long-term fixed-rate equipment trust certificates,
leveraged lease financing, other long-term purchase money security financing or
debt or equity financing. There can be no assurance that the Company will be
able to obtain sufficient financing to fund the purchase of the 747-400
aircraft, or if such financing is available, that it will be available on
commercially reasonable terms.
THE REFINANCINGS
In September 1997, the Company completed certain refinancing and
restructuring transactions (the "Refinancings") with respect to certain of the
Company's existing indebtedness in order to provide the Company with greater
financial flexibility in anticipation of the financing requirements for the
acquisition of the 747-400 aircraft by, among other things, extending maturities
of certain indebtedness, reducing interest expense and making certain covenants
less restrictive. The Refinancings included (i) a new, $185 million seven-year
amortizing term loan facility (the "AFL II Term Loan Facility") for a new
wholly-owned subsidiary of the Company formed for the sole purpose of owning and
leasing four 747-200 aircraft and nine spare engines currently owned by the
Company and financed by the Company's existing revolving credit facility (the
"Aircraft Credit Facility"); (ii) an amendment and restatement of the Aircraft
Credit Facility to (a) provide for a new two-year revolving period followed by a
three-year amortizing term loan period, (b) provide for a reduction in the
credit spread for borrowings based on financial performance and (c) make the
financial covenants less restrictive to facilitate the financings required in
connection with the acquisition of the 747-400 aircraft; and (iii) an amendment
to the financial covenants of the existing AFL Term Loan Facility (as defined),
to facilitate the financings required in connection with the acquisition of the
747-400 aircraft. See "Description of Certain Indebtedness."
---------------------
The Company is incorporated under the laws of Delaware. The address of the
Company's principal executive office is 538 Commons Drive, Golden, Colorado
80401 and the telephone number is (303) 526-5050.
THE EXCHANGE OFFER
Purpose and Effect......... The Old Notes were sold by the Company on August
13, 1997 to BT Alex. Brown Incorporated (formerly
BT Securities Corporation) (the "Initial Purchaser"
or "BT"), who privately placed the Old Notes with
certain institutional investors. In connection
therewith, the Company executed and delivered for
the benefit of the holders of the Old Notes a
registration rights agreement (the "Registration
Rights Agreement") providing for, among other
things, the Exchange Offer. See "The Exchange
Offer -- Terms of the Exchange Offer."
Terms of the Exchange
Offer...................... New Notes are being offered in exchange for a like
principal amount of Old Notes. Old Notes may be
exchanged only in integral multiples of $1,000. The
Company will issue the New Notes to holders
promptly following acceptance of the Old Notes by
the Company after the Expiration Date. See "Risk
Factors -- Consequences of Failure to Exchange."
Holders of the Old Notes do not have appraisal or
dissenters' rights in connection with the Exchange
Offer under the Delaware General Corporation Law,
the governing law of the state of incorporation of
the Company. See "The Exchange Offer -- Terms of
the Exchange Offer."
2
<PAGE> 9
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered or accepted for exchange. See "The
Exchange Offer -- Certain Conditions to the
Exchange Offer."
Expiration Date............ 5:00 p.m. New York City time on December 4, 1997,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Terms of the
Exchange Offer."
Conditions................. The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company reserves the right to terminate or amend
the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such
condition. The Exchange Offer is also subject to
the terms and provisions of the Registration Rights
Agreement. NO VOTE OF THE COMPANY'S SECURITYHOLDERS
IS REQUIRED TO EFFECT THE EXCHANGE OFFER AND NO
SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT
HEREBY. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
Procedures for tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes, or a Book-Entry Confirmation
(as defined), as the case may be, and any other
required documentation to the exchange agent (the
"Exchange Agent") at the address set forth herein.
The method of delivery of such documentation is at
the election and risk of the holder. By executing
the Letter of Transmittal, each holder will
represent to the Company, among other things, that
(i) the New Notes acquired pursuant to the Exchange
Offer by the holder and any beneficial owners of
Old Notes are being obtained in the ordinary course
of business of the person receiving such New Notes,
(ii) neither the holder nor such beneficial owner
is participating in, intends to participate in or
has an arrangement or understanding with any person
to participate in, the distribution of such New
Notes and (iii) neither the holder nor such
beneficial owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker
or dealer as a result of market-making activities
or other trading activities (other than Old Notes
acquired directly from the Company), must
acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer -- Procedures for Tendering Old Notes" and
"Plan of Distribution."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender, should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of
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<PAGE> 10
Transmittal and delivering his or her Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time. See "The
Exchange Offer -- Procedures for Tendering Old
Notes."
Book-Entry Transfer........ Any financial institution that is a participant in
the Book-Entry Transfer Facility's (as defined)
system may make book-entry delivery of Old Notes by
causing the Book-Entry Transfer Facility to
transfer such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's
procedures for transfer. See "The Exchange
Offer -- Book-Entry Transfer."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m. New York City time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of New Notes.... Upon satisfaction or waiver of all conditions of
the Exchange Offer, the Company will accept for
exchange any and all Old Notes which are properly
tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will be
delivered promptly following acceptance of the Old
Notes by the Company after the Expiration Date. See
"The Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of New Notes."
Federal Income Tax
Consequences............. The exchange of Old Notes for New Notes by
tendering holders will not be a taxable exchange
for federal income tax purposes as a result of such
exchange. See "Certain Federal Income Tax
Consequences."
Regulatory Approvals....... The Company does not believe that the receipt of
any material federal or state regulatory approvals
will be necessary in connection with the Exchange
Offer. See "The Exchange Offer -- Regulatory
Approvals."
Use of Proceeds............ The Company will not receive any proceeds from the
exchange pursuant to the Exchange Offer. See "Use
of Proceeds."
Exchange Agent............. State Street Bank & Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange Agent."
Resales of the New Notes... The New Notes are being offered hereunder in order
to satisfy certain obligations of the Company
contained in the Registration Rights Agreement.
Based on positions of the Commission and no action
or interpretive letters issued to third parties,
the Company believes that the New Notes issued
pursuant to the Exchange Offer to a holder in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary
course of such holder's business and such holder is
not participating, does not intend to participate
and has no arrangement or understanding with any
person to participate in the distribution of such
New Notes. If any holder acquires New Notes in the
Exchange Offer for
4
<PAGE> 11
the purpose of distributing or participating in a
distribution of New Notes, such holder cannot rely
on the position of the staff of the Commission set
forth in its non-action and interpretive letters
and must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with a secondary resale
transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that
receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that (i) Old
Notes tendered by it in the Exchange Offer were
acquired in the ordinary course of its business as
a result of market-making or other trading
activities and (ii) it will deliver a prospectus in
connection with any resale of New Notes received in
the Exchange Offer. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with any
resale of the New Notes received in exchange for
Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making or
other trading activities (other than Old Notes
acquired directly from the Company). The Company
has agreed that, for a period of 180 days following
the consummation of the Exchange Offer, it will
make this Prospectus available to any broker-dealer
for use in connection with any such resale. See
"The Exchange Offer -- Resales of the New Notes"
and "Plan of Distribution."
SUMMARY DESCRIPTION OF NEW NOTES
Securities Offered......... $150,000,000 aggregate principal amount of 10 3/4%
Senior Notes due 2005.
Issuer..................... Atlas Air, Inc.
Maturity Date.............. August 1, 2005.
Interest Payment Dates..... Interest on the New Notes will accrue from the last
interest payment date on which interest was paid on
the Old Notes surrendered in exchange therefor or,
if no interest has been paid on the Old Notes, from
the date of original issuance of the Old Notes and
will be payable semi-annually on each February 1
and August 1 of each year, commencing February 1,
1998.
Ranking.................... The New Notes will represent general unsecured
obligations of the Company ranking senior to all
subordinated indebtedness of the Company and pari
passu in right of payment to all existing and
future unsecured senior indebtedness of the
Company. The New Notes will be effectively
subordinated, however, to all secured indebtedness
of the Company and all indebtedness of the
Company's subsidiaries. As of June 30, 1997, on a
pro forma basis after giving effect to the Offering
and the Refinancings and the application of the
proceeds thereof, the Company would have had
approximately $595.0 million of consolidated
secured indebtedness outstanding, including
approximately $370.3 million of indebtedness of the
Company's subsidiaries.
Optional Redemption........ The New Notes will be redeemable, in whole or in
part, at the option of the Company on or after
August 1, 2001, at the redemption prices set forth
herein, plus accrued interest to the date of
redemption. In addition, at any time on or prior to
August 1, 2000, the Company, at its option, may
redeem up to 35% of the aggregate principal amount
of the Notes
5
<PAGE> 12
originally issued with the net cash proceeds of one
or more Public Equity Offerings, at a redemption
price equal to 110.75% of the principal amount
thereof plus accrued interest to the date of
redemption; provided at least 65% of the aggregate
principal amount of the Notes originally issued
remains outstanding immediately after any such
redemption.
Change of Control.......... Upon a Change of Control (as defined), each holder
of the New Notes will have the right to require the
Company to repurchase such holder's New Notes at a
price equal to 101% of the principal amount thereof
plus accrued and unpaid interest to the date of
repurchase. There can be no assurance that, in the
event of a Change of Control, the Company will
have, or be able to obtain, sufficient funds to
repurchase the New Notes.
Certain Covenants.......... The Indenture governing the New Notes (the
"Indenture") contains certain limitations on the
ability of the Company and its subsidiaries to,
among other things, incur additional indebtedness,
pay dividends or make certain other restricted
payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur
liens, create restrictions on the ability of a
subsidiary to pay dividends or make certain
payments, sell or issue preferred stock of
subsidiaries to third parties, merge or consolidate
with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all of the assets of the Company.
For additional information regarding the New Notes, see "Description of the
Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by holders prior to tendering their Old Notes in the Exchange Offer.
6
<PAGE> 13
SUMMARY FINANCIAL DATA
The summary financial data presented below have been derived from the
consolidated financial statements of the Company. The data for the years ended
December 31, 1996, 1995 and 1994 were derived from the Company's audited
consolidated financial statements and related notes, and other financial
information incorporated herein. The data for the six months ended June 30, 1997
and 1996 were derived from the Company's unaudited consolidated financial
statements, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information set forth herein. The results of operations for
the interim periods presented are not indicative of the results that may be
expected for the full year. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto, which are incorporated in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total operating revenues........................ $102,979 $171,267 $315,659 $131,263 $175,951
-------- -------- -------- -------- --------
Operating Expenses:
Flight crew salaries and benefits............. 8,887 14,584 25,020 10,866 13,947
Other flight-related expenses................. 9,270 12,361 27,404 12,095 13,722
Maintenance................................... 24,517 42,574 84,305 32,380 55,011
Aircraft and engine rentals................... 14,044 22,902 27,341 11,673 15,485
Fuel and ground handling...................... 9,747 5,027 10,554 4,248 7,128
Depreciation and amortization................. 7,451 14,793 25,515 10,093 19,174
Other......................................... 15,169 16,352 27,457 11,831 17,896
Write-off of capital investment and other..... -- -- -- -- 27,100
-------- -------- -------- -------- --------
Total operating expenses............... 89,085 128,593 227,596 93,186 169,463
-------- -------- -------- -------- --------
Operating income................................ 13,894 42,674 88,063 38,077 6,488
Other income (expense):
Interest income............................... 490 2,025 7,102 2,751 3,491
Interest expense.............................. (10,784) (18,460) (35,577) (15,450) (23,647)
-------- -------- -------- -------- --------
Total other income (expense)........... (10,294) (16,435) (28,475) (12,699) (20,156)
-------- -------- -------- -------- --------
Income (loss) before income taxes............... 3,600 26,239 59,588 25,378 (13,668)
Income tax benefit (expense).................... (14) (8,408) (21,750) (9,138) 4,989
-------- -------- -------- -------- --------
Income (loss) before extraordinary item......... 3,586 17,831 37,838 16,240 (8,679)
Extraordinary Item: Gain from extinguishment of
debt, net of applicable taxes of $9,622....... -- -- -- -- 16,740
-------- -------- -------- -------- --------
Net income............................. $ 3,586 $ 17,831 $ 37,838 $ 16,240 $ 8,061
======== ======== ======== ======== ========
OTHER DATA:
EBITDA (1)...................................... $ 21,345 $ 57,467 $113,578 $ 48,170 $ 25,662
Ratio of EBITDA to interest expense (1)......... 1.98x 3.11x 3.19x 3.12x 1.09x
Ratio of earnings to fixed charges (2).......... 1.21x 1.86x 2.11x 2.22x --(2)
OPERATING DATA:
Total block hours flown (3)..................... 19,049 33,265 59,445 25,198 32,984
Revenue per block hour.......................... $ 5,406 $ 5,149 $ 5,310 $ 5,209 $ 5,334
EBITDA per block hour (1)....................... $ 1,121 $ 1,728 $ 1,911 $ 1,912 $ 778
Average aircraft operated (4)................... 5.2 7.7 14.7 12.4 18.4
Total aircraft (at end of period)............... 6 10 17 14 20
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 89,923
Net property and equipment.................................. 748,981
Total assets................................................ 901,761
Total debt.................................................. 589,881
Stockholders' equity........................................ 220,393
</TABLE>
7
<PAGE> 14
- ---------------
(1) EBITDA represents income (loss) before income taxes, depreciation and
amortization, and total other income (expense). EBITDA is not a recognized
measure of performance under GAAP and should not be considered in isolation
or as an alternative to, or more meaningful than, operating income or
operating cash flows prepared in accordance with GAAP as an indicator of the
Company's operating performance or liquidity.
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
income prior to income tax benefit (expense) and fixed charges. Fixed
charges consist of interest expense (including amounts capitalized),
amortization of debt issuance costs and one-third of rental payments on
operating leases (such interest having been deemed by the Company to
represent the interest portion of such payments). Earnings were insufficient
to cover fixed charges by $16,235,000 for the six months ended June 30,
1997.
(3) Total block hours flown for an aircraft represents the elapsed time from the
moment the aircraft first moves at the point of origin to the time it comes
to rest at its destination.
(4) Average aircraft operated represents the total number of aircraft operated
during each day of a given period divided by the number of days in such
period.
8
<PAGE> 15
RISK FACTORS
In addition to the other information in this Prospectus holders of the Old
Notes should carefully consider the following factors prior to exchanging Old
Notes for the New Notes offered hereby.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that the New Notes issued pursuant
to the Exchange Offer to a holder in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by any holder thereof (other than any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate in the distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for a period of 180 days
following the consummation of the Exchange Offer, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
However, the ability of any holder to resell the New Notes is subject to
applicable state securities laws as described in "-- Blue Sky Restrictions on
Resale of New Notes" below. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if any, for the Old Notes
not so tendered could be adversely affected. See "The Exchange Offer" and "Plan
of Distribution."
FAILURE TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer and avoid the restrictions on transfer
of the Old Notes, holders of Old Notes must transmit a properly completed Letter
of Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at one of the addresses set forth below under
"The Exchange Offer -- Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer of such Old Notes, if such procedure is
available, into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the procedure for book-entry transfer described herein, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described herein and in the
Letter of Transmittal. The method of delivery of the Old Notes and the Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the holder. See "The Exchange Offer."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged. After giving pro forma effect to the
Offering and the Refinancings and the application of the proceeds thereof, as of
June 30, 1997, the Company's total indebtedness outstanding would have been
approximately $747.9 million. The Company's high degree of leverage could have
important
9
<PAGE> 16
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be diminished in
the future; (ii) a substantial portion of the Company's cash flow from
operations will be required for the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for its
operations and other purposes; (iii) the Company may be substantially more
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage; (iv) the Company's substantial degree of leverage may
hinder its ability to adjust rapidly to changing market conditions and could
make it more vulnerable in the event of a downturn in general economic
conditions or its business; and (v) substantially all of the Company's other
indebtedness will become due prior to the time the principal payment on the
Notes will become due.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance, its indebtedness (including the Notes) and to
make scheduled payments under its lease obligations depends on its future
performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control. There can be no assurance,
however, that the Company's business will continue to generate sufficient cash
flow from operations in the future to service its debt. If unable to do so, the
Company may be required to refinance all or a portion of its existing debt,
including the Notes, to sell assets or to obtain additional financing. There can
be no assurance that any such refinancing or that any such sale of assets or
additional financing would be possible on terms reasonably favorable to the
Company.
AVAILABILITY OF 747-400 AIRCRAFT FINANCING; DELIVERY DELAYS
The Company has agreed to purchase 10 747-400 aircraft to be delivered
commencing in May 1998 through 2001. The aggregate value of the 10 747-400
aircraft, four installed engines per aircraft and five spare engines, based on
list prices, is approximately $1.7 billion. While the Company currently
anticipates that it will be able to obtain the necessary financing on a timely
basis to pay the Pre-Delivery Deposits for the 747-400 aircraft as they become
due and the total purchase price for the 747-400 aircraft to be acquired, there
can be no assurance that the Company will be able to obtain sufficient financing
or, if such financing is available, that it will be available on commercially
reasonable terms. If it is unable to obtain sufficient financing, the Company
could be required to modify its expansion plans, incur higher than anticipated
financing costs or incur various penalty payments under the Boeing Purchase
Contract, which could have a material adverse effect on the Company. Due to
production problems at Boeing, the Company believes that the 1998 delivery
positions of the 747-400 aircraft may be delayed up to 60 days. While Boeing
will appropriately compensate the Company for any delays in delivery of the
747-400 aircraft, any such delays may adversely impact the Company's ability to
initiate service with prospective customers in a timely fashion.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS; EFFECTIVE
SUBORDINATION OF THE NOTES TO SECURED INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, impose restrictions on the ability of a subsidiary
to pay dividends or make certain payments to the Company, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. In addition,
certain of the Company's other debt instruments contain other more restrictive
financial and operating covenants. See "Description of Certain Indebtedness" and
"Description of Notes -- Certain Covenants." The Company's ability to meet such
financial ratios and tests may be affected by events beyond its control. There
can be no assurance that the Company will meet such tests. A breach of any of
these covenants could result in a default under certain debt instruments and/or
the Indenture. Upon the occurrence of an event of default under the various debt
instruments, the lenders thereunder could elect to declare all amounts
outstanding thereunder, together with accrued interest, to be immediately due
and payable. If the Company was unable to repay those amounts, such lenders
could proceed against the collateral granted to them to secure that
indebtedness. If such lenders accelerate the payment of such indebtedness, there
can be no assurance that the assets of the
10
<PAGE> 17
Company would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company, including the Notes.
The Notes are unsecured and thus will be effectively subordinated in right
of payment to any secured indebtedness of the Company to the extent of the value
of any assets securing such indebtedness. Following the Offering and the
Refinancings, substantially all of the indebtedness of the Company, other than
the Notes, will be secured by liens on substantially all of the fixed assets of
the Company. As of June 30, 1997, on a pro forma basis after giving effect to
the Offering and the Refinancings and the application of the proceeds thereof,
the Company would have had approximately $595.0 million of consolidated secured
indebtedness outstanding. In bankruptcy, the holder of a security interest with
respect to any assets of the Company will be entitled to have the proceeds of
such assets applied to the payment of such holder's claim before the remaining
proceeds, if any, are applied to the claims of the holders of the Notes. In
addition to indebtedness of the Company outstanding on the date of original
issuance of the Old Notes, the Indenture permits the Company and its
Subsidiaries (as defined) to incur additional secured indebtedness under certain
circumstances. See "Description of the Notes -- Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness."
COMPETITION
The market for air cargo services is highly competitive. A number of
airlines currently provide services for themselves and for others, similar to
the services offered by the Company, and new airlines may be formed that would
also compete with the Company. Such airlines may have substantially greater
financial resources than the Company. The Company believes that the most
important bases for competition in the air cargo business are the range, payload
and cubic capacities of the aircraft and the price, flexibility, quality and
reliability of the cargo transportation service. The ability of the Company to
achieve its strategic plan depends upon its success in convincing major
international airlines that outsourcing some portion of their air cargo business
remains more cost-effective than undertaking cargo operations with their own
incremental capacity and resources and the ability of the Company to obtain
higher ACMI Contract rates in connection with the 747-400 aircraft compared to
those currently obtained in connection with existing 747-200 aircraft.
DEPENDENCE ON SIGNIFICANT CUSTOMERS; GEOGRAPHIC CONCENTRATION
In 1996, China Airlines, KLM and Lufthansa accounted for approximately 34%,
12% and 11%, respectively, of the Company's total operating revenues. The
Company believes that its relationships with its customers are mutually
satisfactory, as evidenced by the fact that in the last three years it has
renewed eight ACMI Contracts with customers including China Airlines and KLM,
and entered into six new ACMI Contracts with its existing customers. However,
there can be no assurance that any of these agreements will be renewed upon
their expiration. The scheduled termination dates for the current ACMI Contracts
range from 1997 to 2002. See "Business -- ACMI Contracts." The failure to renew
any of these agreements, or the renewal of any of these agreements on terms less
favorable to the Company, could have a material adverse effect on the Company.
Additionally, the Company has concentrated a significant percentage of its
resources in routes between the United States and Asia and the Pacific Rim and
between Europe and Asia and the Pacific Rim. Any economic decline or any
military or political disturbance in these areas of the world might prevent or
interfere with the Company's ability to provide service to its Asian and Pacific
Rim destinations and could have a material adverse effect on the Company.
OPERATIONS DEPENDENT UPON LIMITED FLEET
The Boeing 747-200 aircraft in the existing fleet are typically dedicated
by the Company to the service of one or more ACMI Contracts. Although the
Company typically utilizes spare aircraft, in the event one or more of the
Company's aircraft were to be lost or out of service for an extended period of
time, the Company may have difficulty fulfilling its obligations under one or
more of its ACMI Contracts. While the Company believes that its insurance
coverage is sufficient to cover the replacement cost of an aircraft, there can
be no assurance that suitable replacement aircraft could be located or that, if
located, the Company could contract for the services of such an aircraft without
undertaking substantial costs therefor. While the Company carries
11
<PAGE> 18
aircraft hull physical damage and third party liability insurance, any extended
interruption of the Company's operations due to the loss of an aircraft could
have a material adverse effect on the Company.
UTILIZATION OF FUTURE AIRCRAFT
Although the Company generally does not agree to acquire aircraft unless
such aircraft can service existing needs or the Company anticipates that it will
have obtained additional ACMI Contracts for the aircraft to service, the Company
does not have long-term ACMI Contracts with respect to its two most recently
acquired aircraft and with respect to three of the aircraft being subleased from
Federal Express Corporation ("FedEx"). In addition, the Company has not yet
obtained ACMI Contracts to be serviced by the three 747-200 aircraft owned but
not yet modified from passenger to freighter configuration or for the 747-400
aircraft scheduled to be delivered commencing in 1998. See "-- Availability of
747-400 Aircraft Financing; Delivery Delays." Although the Company intends to
have new ACMI Contracts in place for each of these three aircraft not yet
converted from passenger to freighter configuration by the time they are placed
in service, to the extent arrangements for such contracts have not been made at
such time, the Company would seek other revenue opportunities for such aircraft
which it believes are generally available, although there can be no assurance
that such opportunities will be available at such time. The failure to generate
adequate revenue from new aircraft pending the entering into of ACMI Contracts,
or the failure to secure ACMI Contracts for such aircraft as well as the
aircraft currently in service in the Company's fleet, could have a material
adverse effect on the Company. See "Business -- Aircraft."
AGING AIRCRAFT
The Company's fleet currently consists of 24 Boeing 747-200 aircraft,
including the two aircraft subject to leases to a third party, all of which were
manufactured between 1974 and 1986. Manufacturer Service Bulletins ("Service
Bulletins") and the Federal Aviation Administration's ("FAA") Airworthiness
Directives ("Directives") issued under its "Aging Aircraft" program cause
747-200 aircraft operators to be subject to extensive aircraft examinations and
require Boeing 747-200 aircraft to undergo structural inspections and
modifications to address problems of corrosion and structural fatigue at
specified times. For instance, in November 1994, Boeing issued Nacelle Strut
Modification Service Bulletins which have been converted into Directives by the
FAA. Twelve of the Company's 747-200 aircraft will have to be brought into
compliance with such Directives within the next three years at an estimated
aggregate cost of approximately $6.0 million. Other Directives have been issued
that require inspections and minor modifications to Boeing 747-200 aircraft. It
is possible that additional Service Bulletins or Directives applicable to the
types of aircraft or engines included in the Company's fleet could be issued in
the future. The cost of compliance with Directives and of following Service
Bulletins cannot currently be estimated, but could be substantial.
EMPLOYEE RELATIONS
The Company believes it operates with lower incremental personnel costs
than many established international airlines and cargo carriers, principally due
to the flexibility and high productivity of its workforce, arising in part as a
result of the Company's emphasis on providing financial incentives to its
personnel that are focused on the Company's financial performance rather than on
base wages. The Company's employees are not currently subject to a collective
bargaining agreement; however, many airline industry employees are subject to
such agreements and the Company's employees have been solicited from time to
time by union representatives seeking to organize them. There can be no
assurance that the Company will maintain these advantages for any extended
period of time.
REGULATORY MATTERS
Under the Federal Aviation Act of 1958, as amended and recodified (the
"Aviation Act"), the Department of Transportation ("DOT") and the FAA exercise
regulatory authority over the Company. The Company has obtained the necessary
authority to conduct flight operations, including a Certificate of Public
Convenience and Necessity from the DOT and an Air Carrier Operating Certificate
from the FAA; however, the continuation of such authority is subject to
continued compliance by the Company with applicable
12
<PAGE> 19
statutes, rules and regulations pertaining to the airline industry, including
any new rules and regulations that may be adopted in the future. All air
carriers are subject to strict scrutiny and inspection by FAA officials and to
the imposition of new regulatory requirements that can negatively affect their
operations. DOT and FAA approval is required for each of the Company's long-term
ACMI Contracts. In addition, FAA approval is required for each of the Company's
short-term seasonal ACMI Contracts. In order to provide service to foreign
points, the Company must also obtain permission for such operations from the
applicable foreign governments and certain airport authorities. See
"Business -- Governmental Regulation." In addition, DOT regulates the
transportation of hazardous materials by air cargo carriers. Although customers
are required to label shipments that contain hazardous materials, customers may
not inform the Company when their cargo includes hazardous materials. Although
the Company has never had such an incident, the transportation of unmanifested
hazardous materials could result in fines, penalties, banning hazardous
materials from Company aircraft for a period of time, possible damage to the
Company's aircraft or other liability.
CONTROL BY PRINCIPAL STOCKHOLDER
Michael A. Chowdry, the founder, Chief Executive Officer, President and
Chairman of the Board of Directors of the Company, beneficially owns
approximately 59.1% of the outstanding common stock of the Company. As a result,
Mr. Chowdry will be able to direct and control the policies of the Company,
including the election of directors and mergers, sales of assets and other such
transactions.
DEPENDENCE UPON KEY MANAGEMENT PERSONNEL
The Company believes that its success in acquiring ACMI Contracts and
managing its operations will depend substantially upon the continued services of
many of the present executive officers of the Company. The loss of the services
of any of such persons could have a material adverse effect on the Company. The
Company has employment agreements with such officers, which are generally
terminable at any time by either party.
SEASONALITY OF CUSTOMERS' CARGO OPERATIONS
The cargo operations of the Company's airline customers are seasonal in
nature, with peak activity traditionally in the second half of the year, and
with a significant decline occurring in the first quarter. As a result, the
Company's revenues typically decline in the first quarter of the year as its
minimum contractual aircraft utilization level temporarily decreases. The
Company's ACMI Contracts typically allow the Company's customers to cancel a
maximum of 5% of the guaranteed hours of aircraft utilization over the course of
a year. The Company's customers most often exercise such cancellation options
early in the first quarter of the year, when the demand for air cargo capacity
has been historically low or following the seasonal holiday peak in the latter
part of the fourth quarter. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CHANGE OF CONTROL
Upon a Change of Control, the Company is required to offer to repurchase
all outstanding Notes at 101% of the principal amount thereof plus accrued
interest to the date of repurchase. The source of funds for any such repurchase
would be the Company's available cash or cash generated from other sources.
However, there can be no assurance that sufficient funds would be available at
the time of any Change of Control to make any required repurchases of Notes
tendered or, if applicable, that restrictions in certain of the Company's debt
instruments would permit the Company to make such required repurchases. See
"Description of Certain Indebtedness," "Description of Amended Aircraft Credit
Facility," "Description of AFL II Term Loan Facility" and "Description of
Notes -- Change of Control."
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The New Notes are a new issue of securities, have no
established trading market, and may not be widely distributed. The Company does
not intend to list the New Notes on any national securities exchange or to seek
13
<PAGE> 20
the admission thereof to trading on any automated quotation system. No assurance
can be given that an active public or other market will develop for the New
Notes or as to the liquidity of or the trading market for the New Notes. If a
trading market does not develop or is not maintained, holders of the New Notes
may experience difficulty in reselling the New Notes or may be unable to sell
them at all. If a market for the New Notes develops, any such market may be
discontinued at any time. If a public trading market develops for the New Notes,
future trading prices of the New Notes will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities, and the price at which the
holders of New Notes will be able to sell such New Notes is not assured and the
New Notes could trade at a premium or discount to their purchase price or face
value. Depending on prevailing interest rates, the market for similar securities
and other factors, including the financial condition of the Company, the New
Notes may trade at a discount from their principal amount.
14
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997 (i) on an actual basis and (ii) on a pro forma basis for the Offering
of the Old Notes, the Refinancings and, in each case, the application of the
proceeds therefrom. The information below is unaudited and should be read in
conjunction with the consolidated financial statements, including the notes
thereto, incorporated in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
PRO FORMA
FOR OFFERING
ACTUAL AND REFINANCINGS
-------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 89,923 $177,773(1)(2)
======== ========
Debt:
Aircraft Credit Facility.................................. $219,987 $ 65,958(2)(3)
AFL Term Loan Facility.................................... 185,000 185,000
AFL II Term Loan Facility................................. -- 185,000(2)
Other secured aircraft indebtedness....................... 55,700 55,700
Equipment Notes (4)....................................... 100,000 100,000
Old Notes................................................. -- 150,000
Other debt................................................ 29,194 6,194
-------- --------
Total debt........................................ 589,881 747,852
Stockholders' equity........................................ 220,393 220,393
-------- --------
Total capitalization.............................. $810,274 $968,245
======== ========
</TABLE>
- ---------------
(1) Reflects cash proceeds from the Refinancings net of assumed fees and
expenses.
(2) Reflects the application of the net proceeds from the $185.0 million AFL II
Term Loan Facility used to refinance assets securing $168.3 million drawn
under the Aircraft Credit Facility, the balance of such net proceeds was
paid in cash.
(3) Following the Refinancings, the Aircraft Credit Facility will have a
committed amount of $250.0 million, of which $184.0 million will be undrawn.
(4) For a description of the terms of the Equipment Notes, see "Description of
Certain Indebtedness."
15
<PAGE> 22
SELECTED FINANCIAL DATA
The selected financial data presented below have been derived from the
consolidated financial statements of the Company. The data for the years ended
December 31, 1996, 1995, 1994 and 1993, and for the period from April 22, 1992
(inception) through December 31, 1992, were derived from the Company's audited
consolidated financial statements and related notes, and other financial
information included herein. The data for the six months ended June 30, 1997 and
1996, were derived from the Company's unaudited consolidated financial
statements, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information set forth therein. The results of operations for
the interim periods presented are not indicative of the results that may be
expected for the full year.
<TABLE>
<CAPTION>
THE COMPANY
AND
PREDECESSORS(1) THE COMPANY
--------------- ----------------------------------------------------------------
APRIL 22, 1992
THROUGH SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
--------------- ------------------------------------------ -------------------
1992 1993(1) 1994 1995 1996 1996 1997
--------------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total operating revenues.................. $ 19,568 $ 41,263 $102,979 $171,267 $315,659 $131,263 $175,951
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Flight crew salaries and benefits....... -- 4,243 8,887 14,584 25,020 10,866 13,947
Other flight-related expenses........... 5,751 7,844 9,270 12,361 27,404 12,095 13,722
Maintenance............................. 2,636 8,052 24,517 42,574 84,305 32,380 55,011
Aircraft and engine rentals............. -- 1,758 14,044 22,902 27,341 11,673 15,485
Fuel and ground handling................ -- 4,575 9,747 5,027 10,554 4,248 7,128
Depreciation and amortization........... 2,609 5,647 7,451 14,793 25,515 10,093 19,174
Other................................... 3,829 8,698 15,169 16,352 27,457 11,831 17,896
Write-off of capital investment and
other................................. -- -- -- -- -- -- 27,100
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.......... 14,825 40,817 89,085 128,593 227,596 93,186 169,463
-------- -------- -------- -------- -------- -------- --------
Operating income.......................... 4,743 446 13,894 42,674 88,063 38,077 6,488
Other income (expense):
Interest income......................... 29 244 490 2,025 7,102 2,751 3,491
Interest expense........................ (4,746) (10,101) (10,784) (18,460) (35,577) (15,450) (23,647)
Other................................... (9,500) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total other income (expense)...... (14,217) (9,857) (10,294) (16,435) (28,475) (12,699) (20,156)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes......... (9,474) (9,411) 3,600 26,239 59,588 25,378 (13,668)
Income tax benefit (expense).............. 360 1,388 (14) (8,408) (21,750) (9,138) 4,989
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary item... (9,114) (8,023) 3,586 17,831 37,838 16,240 (8,679)
Extraordinary Item: Gain from
extinguishment of debt, net of
applicable taxes of $9,622.............. -- -- -- -- -- -- 16,740
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................. $ (9,114) $ (8,023) $ 3,586 $ 17,831 $ 37,838 $ 16,240 $ 8,061
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(2)................................. $ 7,352 $ 6,093 $ 21,345 $ 57,467 $113,578 $ 48,170 $ 25,662
Ratio of EBITDA to interest expense(2).... 1.55x 0.60x 1.98x 3.11x 3.19x 3.12x 1.09x
Ratio of earnings to fixed charges(3)..... --(4) --(4) 1.21x 1.86x 2.11x 2.22x --(4)
OPERATING DATA:
Total block hours flown(5)................ NA 7,907 19,049 33,265 59,445 25,198 32,984
Revenue per block hour.................... NA $ 5,219 $ 5,406 $ 5,149 $ 5,310 $ 5,209 $ 5,334
EBITDA per block hour(2).................. NA $ 771 $ 1,121 $ 1,728 $ 1,911 $ 1,912 $ 778
Average aircraft operated(6).............. NA 2.1 5.2 7.7 14.7 12.4 18.4
Total aircraft (at end of period)......... 2 3 6 10 17 14 20
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................. $ 13,323 $ 6,198 $ 10,524 $ 96,990 $124,663 $149,379 $ 89,923
Net property and equipment................ 117,680 114,255 131,237 319,751 584,270 425,935 748,981
Total assets.............................. 133,410 125,005 162,731 447,323 773,707 623,540 901,761
Total debt................................ 132,438 130,690 163,615 351,261 484,429 391,447 589,881
Stockholders' equity (deficit)............ (11,316) (19,339) (15,753) 68,715 212,373 190,241 220,393
</TABLE>
- ---------------
(1) For the period April 22, 1992 (inception) through December 31, 1992, the
financial information for the Company, which was formed in August 1992, has
been combined with the financial information of the
16
<PAGE> 23
Company's predecessors in a manner similar to a pooling-of-interests
transaction. The Company received its required FAA and DOT operating
certificates in February 1993 and began operations under its own name at
that time. Prior to 1993, financial results reflect the costs associated
with the formation of the Company and the operating results from the
ownership of two Boeing 747 aircraft which were leased to another carrier
for operation by such carrier pursuant to leases with China Airlines
beginning in April 1992 and November 1992, respectively, as well as to the
United States military during November and December 1992.
(2) EBITDA represents income (loss) before income taxes, depreciation and
amortization, and total other income (expense). EBITDA is not a recognized
measure of performance under GAAP and should not be considered in isolation
or as an alternative to, or more meaningful than, operating income or
operating cash flows prepared in accordance with GAAP as an indicator of the
Company's operating performance or liquidity.
(3) In calculating the ratio of earnings to fixed charges, earnings consists of
income (loss) prior to income tax benefit (expense) and fixed charges. Fixed
charges consist of interest expense (including amounts capitalized),
amortization of debt issuance costs and one-third of rental payments on
operating leases (such interest having been deemed by the Company to
represent the interest portion of such payments).
(4) Earnings were insufficient to cover fixed charges by $16,235,000, $9,411,000
and $10,594,000, respectively, for the six months ended June 30, 1997, the
year ended December 31, 1993 and the period April 22, 1992 (inception)
through December 31, 1992.
(5) Total block hours flown for an aircraft represents the elapsed time from the
moment the aircraft first moves at the point of origin to the time it comes
to rest at its destination.
(6) Average aircraft operated represents the total number of aircraft operated
during each day of a given period divided by the number of days in such
period.
17
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company, through its predecessors, began its operations on April 22,
1992 with one Boeing 747-200 in the service of China Airlines Ltd. and expanded
its operations to a second Boeing 747-200 in November 1992. These operations
were undertaken on behalf of the Company by another carrier utilizing pilot
crews, dispatch facilities, maintenance operations and other services provided
by such carrier. As a result, the Company's operations prior to 1993 were
primarily limited to aircraft leasing and start-up activities. The Company
initiated cargo services under the name of Atlas Air, Inc. in February 1993. The
Company's fleet currently consists of 22 Boeing 747-200 aircraft in freighter
service and two 747-200 passenger aircraft under lease to a third party.
The cargo operations of the Company's airline customers are seasonal in
nature, with peak activity occurring traditionally in the second half of the
year, and with a significant decline occurring in the first quarter. This
decline in cargo activity is largely due to the decrease in shipping that occurs
following the December and January holiday seasons associated with the
celebration of Christmas and the Chinese New Year. Certain of the Company's
customers have, in the past, elected to use that period of the year to exercise
their contractual options to cancel a limited number (generally not more than 5%
per year) of guaranteed hours with the Company, and are expected to continue to
do so in the future. As a result, the Company's revenues typically decline in
the first quarter of the year as its contractual aircraft utilization level
temporarily decreases. The Company seeks to schedule, to the extent possible,
its major aircraft maintenance activities during this period to take advantage
of any unutilized aircraft time.
The aircraft acquisitions, lease arrangements and modification schedule are
described in Note 1 of the Company's December 31, 1996 audited consolidated
financial statements. The timing of when an aircraft enters the Company's fleet
can affect not only annual performance, but can make quarterly results vary,
thereby affecting the comparability of operations from period to period.
The tables below set forth selected financial and operating data for the
first and second quarters of 1997 and 1996, and the four quarters of the years
ended December 31, 1996, 1995 and 1994 (dollars in thousands).
<TABLE>
<CAPTION>
1997 1996
------------------------------- ------------------------------
1ST 2ND 1ST 2ND
QUARTER QUARTER CUMULATIVE QUARTER QUARTER CUMULATIVE
------- -------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues........ $82,049 $ 93,902 $175,951 $58,649 $72,614 $131,263
Operating expenses.............. 64,907 104,556 169,463 43,239 49,947 93,186
Operating income................ 17,142 (10,654) 6,488 15,410 22,667 38,077
Other income (expense).......... (9,248) (10,908) (20,156) (5,717) (6,982) (12,699)
Net income...................... 5,013 3,048 8,061 6,203 10,037 16,240
Block hours..................... 15,443 17,541 32,984 11,125 14,073 25,198
Average aircraft operated....... 17.2 19.5 18.4 10.8 14.0 12.4
Operating margin................ 20.9% (11.4)% 3.7% 26.3% 31.2% 29.0%
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER CUMULATIVE
------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Total operating revenues............... $58,649 $72,614 $79,681 $104,715 $315,659
Operating expenses..................... 43,239 49,947 59,635 74,775 227,596
Operating income....................... 15,410 22,667 20,046 29,940 88,063
Other income (expense)................. (5,717) (6,982) (7,207) (8,569) (28,475)
Net income............................. 6,203 10,037 8,201 13,397 37,838
Block hours............................ 11,125 14,073 15,444 18,803 59,445
Average aircraft operated.............. 10.8 14.0 15.4 18.4 14.7
Operating margin....................... 26.3% 31.2% 25.2% 28.6% 27.9%
</TABLE>
18
<PAGE> 25
<TABLE>
<CAPTION>
1995
-------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER CUMULATIVE
------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Total operating revenues............... $28,938 $38,418 $47,769 $ 56,142 $171,267
Operating expenses..................... 25,397 28,370 34,844 39,982 128,593
Operating income....................... 3,541 10,048 12,925 16,160 42,674
Other income (expense)................. (3,330) (4,287) (4,805) (4,014) (16,435)
Net income............................. 50 3,861 5,568 8,352 17,831
Block hours............................ 5,812 7,568 9,076 10,809 33,265
Average aircraft operated.............. 6.1 6.9 8.2 9.4 7.7
Operating margin....................... 12.2% 26.2% 27.1% 28.8% 24.9%
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER CUMULATIVE
------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Total operating revenues............... $12,177 $20,802 $34,271 $ 35,729 $102,979
Operating expenses..................... 14,094 17,743 27,400 29,848 89,085
Operating income (loss)................ (1,917) 3,059 6,871 5,881 13,894
Other income (expense)................. (2,399) (2,700) (2,635) (2,560) (10,294)
Net income (loss)...................... (4,316) 346 4,235 3,321 3,586
Block hours............................ 2,415 3,789 6,226 6,619 19,049
Average aircraft operated.............. 3.8 5.0 5.8 6.0 5.2
Operating margin....................... (15.7)% 14.7% 20.0% 16.5% 13.5%
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Operating Revenues and Results of Operations. Total operating revenues for
the quarter ended June 30, 1997 increased to $93.9 million compared to $72.6
million for the same period in 1996, an increase of approximately 29%. The
average number of aircraft in the Company's fleet during the second quarter of
1997 was 19.5 compared to 14.0 during the same period in 1996. Total block hours
for the second quarter of 1997 were 17,541 compared to 14,073 for the same
period in 1996, an increase of approximately 25%, principally reflecting the
increase in the size of the Company's fleet. Revenue per block hour increased by
approximately 4% to $5,353 for the second quarter of 1997 compared to $5,160 for
the second quarter of 1996, primarily as a result of an increase in
higher-yielding charter operations.
In the second quarter of 1997, the Company recorded a largely non-cash
charge to earnings of $27.1 million, which included the write-off of the
Company's remaining balance sheet investment in the five aircraft sub-leased
from FedEx, as well as the establishment of certain reserves associated with
costs necessary to return the aircraft in the first quarter of 1998 and other
non-recurring items. This resulted in an operating loss for the second quarter
of $10.7 million compared to operating income of $22.7 million for the second
quarter of 1996. Excluding this charge, operating income for the second quarter
of 1997 decreased approximately 27% to $16.4 million from $22.7 million for the
second quarter of 1996, principally due to the impact of maintenance costs
associated with the aircraft sub-leased from FedEx. This charge equalled $17.2
million on an after-tax basis and was virtually offset by the realization of an
extraordinary after-tax gain of $16.7 million in the second quarter of 1997,
resulting from the receipt of a prepayment incentive credit associated with the
refinancing of approximately $228 million of indebtedness during the quarter.
Net income of $10.0 million for the second quarter of 1996 declined to net
income of $3.0 million for the second quarter of 1997.
Total operating revenues for the six months ended June 30, 1997 were $176.0
million compared to $131.3 million for the year-earlier period, an increase of
approximately 34%. The average number of aircraft in the Company's fleet during
the six months ended June 30, 1997 was 18.4 compared to 12.4 during the same
period in 1996. Total block hours for the first six months of 1997 were 32,984
compared to 25,198 for the same period in 1996, an increase of approximately
31%, principally reflecting the increase in the size of the Company's fleet.
Revenue per block hour increased by approximately 2% to $5,334 for the first
half of 1997
19
<PAGE> 26
compared to $5,209 for the year-earlier period, primarily as a result of an
increase in higher-yielding charter operations. Operating income of $38.1
million for the first half of 1996 decreased to $6.5 million for the first half
of 1997, primarily due to the charge to earnings in the second quarter of 1997
discussed above. Excluding this charge, operating income was $33.6 million for
the first half of 1997 compared to $38.1 million for the year-earlier period, or
a decrease of approximately 12%. There were an average of 4.5 aircraft
sub-leased from FedEx operating in the 1997 period compared to an average of 0.5
aircraft sub-leased from FedEx operating in the 1996 period, with respect to
which maintenance costs are substantially higher than for the rest of the
Company's fleet. In addition, the Company incurred $1.2 million of costs in the
first quarter of 1997 related to the return of two leased aircraft to their
respective lessors. As discussed above for the second quarter of 1997, the
realization of an after-tax extraordinary gain of $16.7 million for the most
part offset the after-tax charge of $17.2 million with respect to the impact on
net income for the first half of 1997. For the six months ended June 30, 1997,
net income was $8.1 million compared to $16.2 million for the year-earlier
period.
Operating expenses. The Company's principal operating expenses include
flight crew salaries and benefits; other flight-related expenses; maintenance;
aircraft and engine rentals; fuel costs and ground handling; depreciation and
amortization; and selling, general and administrative expenses.
Flight crew salaries and benefits include all such expenses for the
Company's pilot work force. Flight crew salaries and benefits increased to $7.1
million in the second quarter of 1997 compared to $5.9 million in the same
period of 1996, due to increases in the number of aircraft in the Company's
fleet and aircraft block hours. While actual expense increased by approximately
21% during the second quarter of 1997, on a block hour basis this expense
declined by 3% to $406 per block hour for the second quarter of 1997 from $418
per block hour for the same period in 1996. For the first six months of 1997,
actual expense increased by approximately 28%, from $10.9 million to $13.9
million, but on a block hour basis declined to $423 per block hour from $431 per
block hour for the same period in 1996, or approximately 2%. These reductions of
approximately 3% and 2%, respectively, were due to increased efficiency in
staffing levels and scheduling resulting from the increased level of operations.
Other flight-related expenses include hull and liability insurance on the
Company's fleet of Boeing 747-200 aircraft, crew travel and meal expenses,
initial and recurring crew training costs and other expenses necessary to
conduct its flight operations.
Other flight-related expenses increased to $7.4 million in the second
quarter of 1997 compared to $6.9 million in the second quarter of 1996, and to
$13.7 million in the six months ended June 30, 1997 compared to $12.1 million in
the six months ended June 30, 1996, or approximately 6% and 13%, respectively,
due primarily to the larger fleet size. This was partially offset by a reduction
in the Company's aircraft hull and liability insurance rates based on its
increased size and favorable operating history. As a result of this and other
operating efficiencies, on a block hour basis, other flight-related expenses
declined by approximately 7% to $419 per block hour for the second quarter of
1997 compared to $449 per block hour for the same period in 1996, and by
approximately 13% to $416 per block hour for the six months ended June 30, 1997
compared to $480 per block hour for the same period in 1996.
Maintenance expenses include all expenses related to the upkeep of the
aircraft, including maintenance, labor, parts, supplies and maintenance
reserves. The costs of C Checks, significant maintenance work every 18 months,
and D checks, major maintenance events, and engine overhauls not otherwise
covered by maintenance reserves are capitalized as they are incurred and
amortized over the life of the maintenance event. In addition, in January 1995
the Company contracted with KLM Royal Dutch Airlines ("KLM") for a significant
part of its regular maintenance operations and support on a fixed cost per
flight hour basis. Effective October 1996, certain aircraft engines were
additionally accepted into the GE engine maintenance program, also on a fixed
cost per flight hour basis, pursuant to a 10 year maintenance agreement.
Maintenance expense increased to $31.7 million in the second quarter of
1997 from $17.7 million in the same period of 1996, and to $55.0 million in the
six months ended June 30, 1997 from $32.4 million in the six months ended June
30, 1996, or approximately 79% and 70%, respectively, partially due to the
increase in the Company's average fleet size and partially due to the higher
maintenance costs with respect to the aircraft sub-leased from FedEx. On a block
hour basis, maintenance expense increased by approximately 44% and
20
<PAGE> 27
30%, respectively, primarily due to higher maintenance costs associated with the
aircraft sub-leased from FedEx.
Aircraft and engine rentals include the cost of leasing aircraft and spare
engines, as well as the cost of short-term engine leases required to replace
engines removed from the Company's aircraft for either scheduled or unscheduled
maintenance and any related short-term replacement aircraft lease costs.
Aircraft and engine rentals were $7.7 million in the second quarter of 1997
compared to $5.8 million in the same period of 1996, and were $15.5 million in
the first half of 1997 compared to $11.7 million in the first half of 1996, or
an increase of approximately 33% for both comparative periods. During the second
quarter of 1997 and for the first half of 1997, the Company leased one
additional aircraft as compared to the year-earlier periods. Engine rentals were
comparable for the same year over year periods.
Because of the nature of the Company's ACMI contracts with its airline
customers, under which the Company is responsible only for the ownership cost
and maintenance of the aircraft and for supplying aircraft crews and insurance,
the Company's airline customers bear all other operating expenses, including
fuel and fuel servicing; marketing costs associated with obtaining cargo;
airport cargo handling; landing fees; ground handling; aircraft push-back and
de-icing services; and specific cargo and mail insurance. As a result, the
Company incurs fuel and ground handling expenses only when it operates on its
own behalf, either in scheduled services, for ad hoc charters or for ferry
flights. Fuel expenses for the Company's non-ACMI contract services include both
the direct cost of aircraft fuel as well as the cost of delivering fuel into the
aircraft. Ground handling expenses for non-ACMI contract service include the
costs associated with servicing the Company's aircraft at the various airports
to which it operates as well as other direct flight related costs.
Fuel and ground handling costs increased to $3.9 million for the second
quarter of 1997 compared to $3.0 million for the second quarter of 1996, and to
$7.1 million for the six months ended June 30, 1997 compared to $4.2 million for
the six months ended June 30, 1996, or approximately 31% and 68%, respectively.
This was due to the relative increase in scheduled service, charter and other
non-ACMI block hours to 626 block hours in the second quarter of 1997 from 509
block hours in the year-earlier period, and to 1,242 block hours for the first
half of 1997 from 776 block hours in the first half of 1996. In addition, fuel
costs have increased year over year for the same periods.
Depreciation and amortization expense includes depreciation on aircraft,
spare parts and ground equipment, and the amortization of capitalized major
aircraft maintenance and engine overhauls.
Depreciation and amortization expense increased to $9.7 million in the
second quarter of 1997 from $5.2 million in the same period of 1996, and to
$19.2 million in the first half of 1997 from $10.1 million in the first half of
1996, or approximately 86% and 90%, respectively. This increase reflects an
increase of approximately 50% in owned aircraft, approximately 100% in spare
engines and an approximate four-fold increase in spare parts for the second
quarter of 1997 and for the first half of 1997 over the same periods in 1996. In
addition, Other Revenues include $0.4 million and $0.7 million of depreciation
for the second quarter of 1997 and the first half of 1997, respectively,
associated with the net lease of two aircraft which are currently in passenger
configuration.
Other operating expenses include salaries, wages and benefits for all
employees other than pilots; accounting and legal expenses; supplies; travel and
meal expenses, excluding those of the aircraft crews; commissions; and other
miscellaneous operating costs.
Other operating expenses increased to $9.9 million in the second quarter of
1997 from $5.5 million in the same period of 1996, and $17.9 million for the
first half of 1997 from $11.8 million in the same period of 1996, or
approximately 82% and 51% respectively, reflecting the increase in the Company's
operations. On a block hour basis, these expenses increased to $566 per block
hour in the second quarter of 1997 from $389 per block hour in the same period
of 1996, and to $543 per block hour for the first half of 1997 from $470 in the
same period of 1996, or approximately 46% and 16%, respectively. This increase
in cost was due primarily to additional personnel and other resources necessary
to properly manage the Company's increased operations.
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Other Income (Expense). Other income (expense) consists of interest income
and interest expense. Interest income of $1.6 million for the second quarter of
1997 was comparable to the same period in 1996, primarily due to a comparable
short-term investment level for both periods. Interest income of $3.5 million
for the first six months of 1997 increased from $2.8 million for the first six
months of 1996 relative to the increase in short-term investments between the
periods. Interest expense increased to $12.5 million in the second quarter of
1997 from $8.6 million in the same period of 1996, and to $23.6 million in the
first half of 1997 from $15.5 million in the first half of 1996, or
approximately 45% and 53%, respectively, primarily resulting from an increase of
approximately 50% in financed flight equipment between these periods.
Income Taxes. Pursuant to the provisions of SFAS No. 109 "Accounting for
Income Taxes," the Company has recorded a tax provision based on tax rates in
effect during the period. Accordingly, the Company accrued taxes at the rate of
36.5% during the second quarter and the first half of 1997 and 36.0% during the
second quarter and first half of 1996. Due to significant capital costs, which
are depreciated at an accelerated rate for tax purposes, a majority of the
Company's tax provision in these periods is deferred.
Seasonality. The cargo operations of the Company's airline customers are
seasonal in nature, with peak activity occurring traditionally in the second
half of the year, and with a significant decline occurring in the first quarter.
This decline in cargo activity is largely due to the decrease in shipping that
occurs following the December and January holiday seasons associated with the
celebration of Christmas and the Chinese New Year. Certain of the Company's
customers have, in the past, elected to use that period of the year to exercise
their contractual options to cancel a limited number (generally not more than
5%) of cargo flights with the Company, and are expected to continue to do so in
the future. As a result, the Company's revenues typically decline in the first
quarter of the year as its minimum contractual aircraft utilization level
temporarily decreases. The Company seeks to schedule, to the extent possible,
its major aircraft maintenance activities during this period to take advantage
of any unutilized aircraft time.
In the first quarter of 1997, the Company's customers opted to take the
majority of their contractual cancellations, in contrast to last year's first
quarter, when very few cancellations occurred.
1996 Compared to 1995 Compared to 1994
Operating Revenues and Results of Operations. Total operating revenues for
the year ended December 31, 1996 increased to $315.7 million compared to $171.3
million for 1995, an increase of approximately 84%. The average number of
aircraft in the Company's fleet during 1996 was 14.7, compared to 7.7 during
1995. Total block hours for 1996 were 59,445 compared to 33,265 for 1995, an
increase of approximately 79%. Revenue per block hour increased by 3% to $5,310
for 1996 compared to $5,149 for the year-earlier period reflecting a slight
increase in the level of charter and scheduled service hours. While charter and
scheduled service activity provides a higher revenue rate per block hour, costs
are also higher due to fuel and ground handling costs which the Company must
bear. The Company's operating results improved from a $42.7 million operating
profit for 1995 to an operating profit of $88.1 million for 1996, or
approximately 106%. Net income of $17.8 million for 1995 improved to a net
income of $37.8 million for 1996, or approximately 112%.
Operating levels increased during the first quarter of 1996 as a result of
placing in service four additional aircraft. In January 1996, the Company placed
in service one aircraft upon completion of its cargo modification by Hong Kong
Aircraft Engineering Company ("HAECO"). Two additional aircraft were redelivered
to the Company upon completion of their modification by Boeing in March 1996.
Finally, at the close of the first quarter, the Company took delivery of the
first aircraft sub-leased from FedEx. During the third quarter of 1996, the
Company placed in service the next three aircraft sub-leased from FedEx. At the
end of the third quarter the Company took delivery of a Boeing 747-200 passenger
aircraft acquired from Thai Airways upon completion by Boeing of its
modification to cargo configuration. In the fourth quarter of 1996, a second
Boeing 747-200 passenger aircraft acquired from Thai Airways was placed in
service upon its delivery by Boeing subsequent to modification to cargo
configuration. At the end of 1996, two leased aircraft were taken out of service
for required maintenance prior to re-delivery to the lessors.
The Company's operating levels increased significantly during 1996 as a
result of these aircraft acquisitions. Block hours increased from 11,125 in the
first quarter of 1996 to 18,803 in the fourth quarter of
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1996, relative to the growth in fleet size from 10.8 to 18.4 aircraft for the
two periods. Total operating revenue increased from $58.6 million in the first
quarter to $104.7 million in the fourth quarter, representing slightly higher
block hour rates for the fourth quarter compared to those of the first quarter
of 1996, primarily due to the seasonality of the business of the Company's
customers. The Company achieved $29.9 million operating income and $13.4 million
net income in the fourth quarter of 1996, compared to $15.4 million operating
income and $6.2 million net income in the first quarter of 1996.
The Company's operating levels increased substantially during 1995 also as
a result of aircraft acquisitions. Block hours rose from 5,812 hours in the
first quarter of 1995 to 10,809 in the fourth quarter, as the average number of
aircraft in the Company's fleet grew from 6.1 aircraft to 9.4 aircraft over the
corresponding period. Total operating revenue increased from $28.9 million in
the first quarter of 1995 to $56.1 million in the fourth quarter, with the
Company's operating income increasing from $3.5 million to $16.2 million and its
net income improving from $0.1 million to $8.4 million over that same period.
For the year 1995, total block hours were 33,265 and the average fleet size was
7.7 aircraft. Total operating revenue was $171.3 million, operating income was
$42.7 million and net income was $17.8 million.
The Company's operating levels grew substantially in the last three
quarters of 1994, with block hours increasing from 2,415 hours in the first
quarter to 6,619 hours in the fourth quarter. Over the corresponding period,
total operating revenue increased from $12.2 million in the first quarter to
$35.7 million in the fourth quarter and the Company's operating results improved
from a first quarter operating loss of approximately $1.9 million to operating
profits of $6.9 million and $5.9 million in the third and fourth quarters,
respectively. In addition, the first quarter net loss of $4.3 million improved
to third and fourth quarter net incomes of $4.2 million and $3.3 million,
respectively. For the year 1994, total block hours were 19,049 and the average
fleet size was 5.2 aircraft. Total operating revenue was $103.0 million,
operating income was $13.9 million and net income was $3.6 million.
Operating Expenses. Expenses for flight crew salaries and benefits
increased to $25.0 million in 1996 from $14.6 million in 1995, primarily as a
result of the increase in the Company's fleet of Boeing 747 aircraft from an
average of 7.7 aircraft in 1995 to 14.7 aircraft in 1996, while aircraft block
hours increased from 33,265 to 59,445, or 79%, over such period. On a block hour
basis, this expense declined to $421 per hour for 1996 from $438 per hour for
1995, or approximately 4%, due to increased staffing and scheduling efficiencies
associated with increased operations.
Flight crew salaries and benefits increased to $14.6 million in 1995
compared to $8.9 million in 1994, due to an increase in the number of aircraft
in the Company's fleet and aircraft block hours. While actual expense increased
by approximately 64% during 1995 as a result of the increase in the number of
aircraft in the Company's fleet and aircraft block hours, on a block hour basis
this expense declined to $438 per hour for 1995 from $467 per hour for 1994.
This reduction of 6% was due to increased efficiency in staffing levels and
scheduling resulting from the increased level of operations.
Other flight-related expenses rose to $27.4 million in 1996 from $12.4
million in 1995, or approximately 120%, primarily due to fleet expansion and
higher travel costs associated with operational difficulties related to the
aircraft sub-leased from FedEx. On a per block hour basis, other flight-related
expenses increased from $372 per block hour in 1995 to $461 per block hour in
1996, or approximately 24%.
Other flight-related expenses increased to $12.4 million in 1995 compared
to $9.3 million in 1994, or approximately 33%, due primarily to the larger fleet
size. On a block hour basis, this expense declined to $372 per hour for 1995
compared to $487 per hour for 1994. This reduction of 24% was due primarily to
reduced insurance and training costs on a block hour basis due to cost savings
created by the larger fleet.
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Maintenance expense increased to $84.3 million in 1996 from $42.6 million
in 1995, or approximately 98%, due to the increase in average fleet size and
certain increased costs associated with introducing the aircraft sub-leased from
FedEx into the Company's fleet and higher ongoing maintenance costs. The
aircraft sub-leased from FedEx are not covered by the Company's maintenance
contracts with KLM and GE described above. On a block hour basis, maintenance
expense increased by 11%, primarily due to parts support requirements associated
with scheduled and unscheduled maintenance events, and due to the maintenance
costs for the aircraft sub-leased from FedEx discussed above.
Maintenance expense increased to $42.6 million in 1995 from $24.5 million
in 1994, or approximately 74%. On a block hour basis, maintenance expense
decreased by 1% during 1995, primarily reflecting new hourly rates negotiated in
conjunction with the long-term maintenance agreement with KLM described above
that became effective as of January 1, 1995.
Aircraft and engine rentals were $27.3 million in 1996 compared to $22.9
million in 1995, representing an increase of 19%. Lease costs in 1996 for the
aircraft sub-leased from FedEx represented $9.7 million of this increase, offset
by a $2.4 million decrease in sub-service rentals in 1996 compared to 1995. In
addition, the lease costs for one aircraft in 1995 exceeded the lease costs in
1996 by $1.6 million, due to the Company's purchase of the aircraft in the
second quarter of 1996. Engine rentals decreased by $1.8 million in 1996 to $1.8
million, due to the purchase of eight spare engines which reduced the Company's
need for leased engines.
Aircraft and engine rentals were $22.9 million in 1995 compared to $14.0
million in 1994, or an increase of approximately 63%. Maintenance events during
1995 resulted in substitute leased engine expense of $3.7 million, and the
Company incurred $2.8 million in sublease costs for aircraft necessary to
service contract obligations which could otherwise not be met with the Company's
fleet due principally to the scheduled major maintenance events which occurred
during the period. This increase was also due to the greater mix of leased
versus owned aircraft from an average of 3.2 leased aircraft in 1994 to an
average of 3.6 leased aircraft in 1995. The Company purchased three spare
engines in 1995 in order to ensure adequate future spares levels. In each of the
first three quarters of 1994, the Company added a leased aircraft to its fleet
as the Company entered into additional ACMI Contracts for dedicated aircraft.
Fuel and ground handling costs increased to $10.6 million in 1996 from $5.0
million in 1995, or approximately 110%. This increase was primarily due to an
increase in block hours for scheduled service, charters, ferry and other from
1,070 in 1995 to 2,042 in 1996, or approximately 91%. In addition, the airline
industry experienced a rise in fuel costs over the period.
Fuel and ground handling costs decreased to $5.0 million in 1995 from $9.7
million in 1994, or approximately 48%. The decrease in total fuel and ground
handling costs was caused principally by a decline of 57% in scheduled service,
charter and non-revenue hours flown.
Depreciation and amortization expense increased to $25.5 million in 1996
from $14.8 million in 1995, reflecting the increase in the number of owned
aircraft in the Company's fleet. On a per block hour basis, this expense
decreased from $445 per block hour in 1995 to $429 per block hour in 1996, or
approximately 4%. The proportion of owned aircraft to leased aircraft was
relatively the same for 1996 as it was for 1995.
Depreciation and amortization expense increased to $14.8 million in 1995
from $7.5 million in 1994, or approximately 99%. This increase primarily
reflected the impact of the owned aircraft, engines and spare parts added to the
Company's fleet and to the amortization of capitalized engine overhaul costs.
Other operating expenses increased to $27.5 million in 1996 from $16.4
million in 1995, or approximately 68%. On a block hour basis, Other operating
expenses decreased from $492 per block hour in 1995 to $462 per block hour in
1996, or approximately 6%, reflecting a lower rate of growth in the Company's
overhead as compared to its operational growth.
Other operating expenses increased to $16.4 million in 1995 from $15.2
million in 1994, or approximately 7.9%. On a block hour basis, these expenses
declined to $492 per hour in 1995 from $796 in 1994, or 38%, as overhead growth
did not match operational growth.
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Other Income (Expense). Other income (expense) consists of interest income
and interest expense. Interest income increased to $7.1 million for 1996 from
$2.0 million in 1995. This increase was primarily due to the investment of $99.6
million of funds received from the secondary public offering in May 1996, as
well as funds retained from the Company's initial public offering ("IPO") in
August 1995. Interest expense increased to $35.6 million in 1996 from $18.5
million in 1995, resulting from the increase in financed flight equipment
between these periods.
Interest income increased to $2.0 million for 1995 from $0.5 million in
1994 due primarily to the receipt in August 1995 of approximately $67 million of
net proceeds from the IPO and to the receipt of approximately $100 million in
proceeds from the Company's issuance of the Equipment Notes in November 1995,
approximately two thirds of which was utilized immediately to make payments with
respect to the acquisition of additional aircraft. Interest expense increased to
$18.5 million in 1995 from $10.8 million in 1994, or approximately 71%,
substantially all of which relates to a net increase in indebtedness associated
with the acquisition of flight equipment.
Income Taxes. Pursuant to the provisions of SFAS No. 109, "Accounting for
Income Taxes," the Company has recorded a tax provision based on tax rates in
effect during the period. Accordingly, the Company accrued taxes at the rate of
36.5%, 32.0% and 0.4% in 1996, 1995 and 1994, respectively. Due to significant
capital costs, which are depreciated at an accelerated rate for tax purposes, a
majority of the Company's tax provision in both 1996 and 1995 is deferred. The
Company's tax provision in 1994 was not material.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents of
approximately $9.6 million, short-term investments of approximately $80.4
million and working capital of approximately $35.1 million. During the first
half of 1997, cash and cash equivalents decreased approximately $0.2 million,
principally reflecting cash provided from operations of $24.7 million, proceeds
from equipment financings of $372.5 million and net proceeds from the sale and
purchase of short-term investments of $34.5 million, partially offset by
investments in flight and other equipment of $189.5 million, principal
reductions of indebtedness of $237.0 million and debt issuance costs of $5.4
million.
At December 31, 1996, the Company had cash and cash equivalents of
approximately $9.8 million, short-term investments of approximately $114.9
million and working capital of approximately $98.7 million. During 1996, cash
and cash equivalents decreased $87.2 million, principally reflecting investments
in flight and other equipment of $289.7 million, the net purchase of $114.9
million of short-term investments, debt issuance costs of $6.0 million and
principal reductions of indebtedness of $21.6 million, partially offset by cash
provided from operations of $84.4 million, proceeds from equipment financings of
$154.8 million and net common stock issuances of $105.8 million, including the
$99.6 million received from a secondary public offering of the Company's common
stock in the second quarter of 1996.
At December 31, 1995, the Company had cash and cash equivalents of
approximately $97.0 million and working capital of approximately $81.0 million.
During 1995, cash and cash equivalents increased by $86.5 million, principally
reflecting cash provided from operations of $43.6 million, the receipt of
approximately $66.6 million of net proceeds from the IPO, the receipt of net
proceeds of approximately $95.9 million from the Equipment Notes and proceeds
from bank financings of approximately $81.2 million, partially offset by
principal reductions on indebtedness of $7.8 million and investments in flight
equipment of $190.8 million.
In February 1997, the Aircraft Credit Facility was expanded from $175
million to $275 million for the same purposes and under substantially the same
terms and conditions as the initial facility. Certain financial tests must be
met before each purchase of aircraft and related drawdown under the facility. To
date, the Company has met these tests. If in the future, the Company cannot meet
such tests because of the difficult sequencing of aircraft acquisition, aircraft
conversion and customer contracts, the Company believes that other financing
sources would be available to the Company or the Company would acquire aircraft
using its internal cash or seek a waiver of any necessary conditions. As part of
the Refinancings, the Company repaid approximately $168.3 million of previous
draw downs under the Aircraft Credit Facility and the Aircraft Credit Facility
was amended and restated to provide for $250 million of availability a new two
year revolving
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<PAGE> 32
period and, at the Company's option, a subsequent three year term loan. As of
September 22, 1997, the Company had approximately $66.0 million outstanding
under the Aircraft Credit Facility.
In addition, in March, 1997, the Company refinanced one of its aircraft
with Nationsbanc Leasing Corporation ("Nationsbanc"). This aircraft was
previously financed through the Aircraft Credit Facility. As such, this
refinancing increased the availability of funds under the Aircraft Credit
Facility by approximately $25 million. The Nationsbanc financing provides for a
fixed interest rate of 9.16% and a seven year term, extendable under certain
circumstances to ten years.
In May 1997, the Company acquired from Citicorp one 747-200 passenger
aircraft for a purchase price of $25 million, including two spare engines. In
connection with the purchase of the aircraft from Citicorp, the Company agreed
to assume Citicorp's lessor interest in the lease of such aircraft to PAL for
the remainder of the lease term which expires in June 1998.
In May 1997, AFL entered into the AFL Term Loan Facility. Concurrently with
entering into the AFL Term Loan Facility, the proceeds of the AFL Term Loan
Facility were used to repay all existing principal and interest due under an
existing term loan facility for which the Company received a significant
prepayment incentive credit. In addition, this refinancing allowed the Company
to reduce its overall indebtedness and the ongoing interest expense associated
with these aircraft.
In November 1994, Boeing issued Nacelle Strut Modification Service
Bulletins which have been converted into Directives by the FAA. Twelve of the
Company's 747-200 aircraft will have to be brought into compliance with such
Directives within the next three years at an estimated aggregate cost of
approximately $6.0 million. As part of the FAA's overall aging aircraft program,
it has issued Directives requiring certain additional aircraft modifications to
be accomplished prior to the aircraft reaching 20,000 cycles. The average cycle
time for the Company's 17 747-200 aircraft in service (excluding the aircraft
sub-leased from FedEx) is approximately 12,000 cycles and the average cycles
operated per year is approximately 800 cycles. The Company estimates that the
modification costs per aircraft will range between $2 million and $3 million.
Between now and the year 2000, only one aircraft is expected to reach the 20,000
cycle limit and 9 additional aircraft will require modification prior to the
year 2009. The remaining 7 aircraft (excluding the aircraft sub-leased from
FedEx) have already undergone such modifications. Prior to acquiring used
747-200 aircraft, the Company requires the seller to demonstrate that the
aircraft is in compliance with all Directives as of the purchase date. At the
same time, the Company examines all Directives that are known to apply to the
aircraft at a future date. The Company's freighter conversion program
incorporates any and all Directives compliance work that would otherwise have
been required prior to the next major maintenance event in order to minimize
unscheduled maintenance. Other directives have been issued that require
inspections and minor modifications to Boeing 747-200 aircraft. It is possible
that additional Service Bulletins or Directives applicable to the types of
aircraft included in the Company's fleet could be issued in the future. The cost
of compliance with such Directives cannot currently be estimated, but could be
substantial.
In June 1997 the Company entered into the Boeing Purchase Contract with
Boeing to purchase 10 new 747-400 aircraft. The 747-400 aircraft are currently
scheduled to be delivered as follows: 4 in 1998, 2 in 1999, 3 in 2000 and 1 in
2001. The Boeing Purchase Contract also provides the Company with an option to
purchase up to 10 additional 747-400 aircraft for delivery from 1999 through
2002. As a result of the Company being the largest purchaser of 747-400 aircraft
to date, it was able to negotiate from Boeing a significant discount off the
aggregate list price of $1.7 billion for the 10 747-400 aircraft, four installed
engines per aircraft and five spare engines. The Boeing Purchase Contract
requires that the Company pay Pre-Delivery Deposits to Boeing prior to the
delivery date of each 747-400 aircraft in order to secure delivery of the
747-400 aircraft and to defray a portion of the manufacturing costs. The Company
expects that the maximum total amount of Pre-Delivery Deposits at any time
outstanding will be approximately $125 million, approximately $95.2 million of
which was paid as of September 22, 1997 by the Company from short-term
indebtedness and available cash.
In August 1997, the Company completed the Offering of the Old Notes. The
proceeds from the Offering of the Old Notes were used to, among other things,
repay short-term indebtedness incurred by the Company to make Pre-Delivery
Deposits and will be used to make additional Pre-Delivery Deposits as they
become due. As the 747-400 freighter aircraft are purchased upon delivery and
Pre-Delivery Deposits are refunded by
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<PAGE> 33
Boeing to the Company, the proceeds from the Offering may be used to fund a
portion of the total purchase price of the 747-400 freighter aircraft or,
alternatively, for general corporate purposes by the Company. Additional
third-party financing will be required at the time of delivery of each of the
747-400 freighter aircraft. The Company intends to secure such permanent
financing from a combination of aircraft financing transactions, including
long-term fixed-rate equipment trust certificates, leveraged lease financing,
other long-term purchase money security financing or debt or equity financing.
There can be no assurance that the Company will be able to obtain sufficient
financing to fund the purchase of the 747-400 freighter aircraft, or if such
financing is available, that it will be available on commercially reasonable
terms. If it is unable to do so, the Company could be required to modify its
expansion plans or to incur higher than anticipated financing costs, which could
have a material adverse effect on the Company.
In September 1997, the Company completed the Refinancings with respect to
certain of the Company's existing indebtedness in order to provide the Company
with greater financial flexibility in anticipation of the financing requirements
for the acquisition of the 747-400 freighter aircraft by, among other things,
extending maturities of certain indebtedness, reducing interest expense and
making certain covenants less restrictive. The Refinancings include (i) a new,
approximately $185 million seven-year amortizing AFL II Term Loan Facility to a
new wholly-owned subsidiary of the Company formed for the sole purpose of owning
and leasing four 747-200 aircraft and nine spare engines currently owned by the
Company and financed by the Aircraft Credit Facility; (ii) an amendment and
restatement of the Aircraft Credit Facility to (a) provide for a new two-year
revolving period followed by a three-year amortizing term loan period, (b)
provide for a reduction in the credit spread for borrowings based on financial
performance and (c) make the financial covenants less restrictive to facilitate
the upcoming financings required in connection with the acquisition of the
747-400 aircraft; and (iii) an amendment to the financial covenants of the AFL
Term Loan Facility to facilitate the financings required in connection with the
acquisition of the 747-400 freighter aircraft.
Due to the contractual nature of the Company's business, the Company's
management does not consider its operations to be highly working
capital-intensive in nature. Because most of the non-ACMI costs normally
associated with operations are borne by and directly paid for by the Company's
customers, the Company does not incur significant costs in advance of the
receipt of corresponding revenues. Moreover, ACMI costs, which are the
responsibility of the Company, are generally incurred on a regular, periodic
basis ranging from flight hours to months. These costs are largely matched by
revenue receipts, as the Company's contracts require regular payments from its
customers, based upon current flight activity, generally every two to four
weeks. As a result, the Company has not in the past had a requirement for a
working capital facility. The Company is in negotiations with a lender for a $25
million revolving credit facility for general working capital purposes.
The Company believes that cash on hand, the cash flow generated from its
operations and the proceeds from the May 1996 public offering of its common
stock and the Offering of the Old Notes, coupled with availability under the
Aircraft Credit Facility, will be sufficient to meet its normal ongoing
liquidity needs for 1997.
From time to time the Company engages in discussions with third parties
regarding possible acquisitions of aircraft that could expand the Company's
operations. The Company is in negotiations for the acquisition of additional
aircraft, principally for delivery to the Company in 1998 and beyond.
RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share." The purpose of SFAS No. 128 is to simplify the
computation of earnings per share ("EPS") and to make the U.S. standard for
computing EPS more compatible with the EPS standards of other countries and with
that of the International Accounting Standards Committee. The effective date for
the application of SFAS No. 128 for both interim and annual periods is after
December 15, 1997. Earlier application is not permitted. The Company does not
expect the application of SFAS No. 128 to have a material impact on its EPS
calculation.
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FORWARD-LOOKING STATEMENTS
To the extent that any of the statements contained herein relating to the
Company's expectations, assumptions and other Company matters are
forward-looking, they are made in reliance upon the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such statements are based
on current expectations that involve a number of uncertainties and risks that
could cause actual results to differ materially from those projected in the
forward-looking statements, including, but not limited to, risks associated
with: worldwide business and economic conditions; product demand and the rate of
growth in the air cargo industry; the impact of competitors and competitive
aircraft and aircraft financing availability; the ability to attract and retain
new and existing customers; normalized aircraft operating costs and reliability;
management of growth; the continued productivity of its workforce; dependence on
key personnel; and regulatory matters.
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BUSINESS
THE COMPANY
Atlas is the world's largest air cargo outsourcer, with an all Boeing fleet
of 747 freighter aircraft. The Company provides reliable airport-to-airport
cargo transportation services throughout the world to major international air
carriers generally under one- to five-year fixed-rate contracts which typically
require that the Company supply aircraft, crew, maintenance and insurance. The
Company's customers currently include China Airlines, KLM, Lufthansa Cargo,
British Airways, SAS, Emirates, Thai Airways, Fast Air and LAS. The Company is
able to provide efficient, cost-effective service to its customers primarily as
a result of its productive and flexible work force, the outsourcing of a
significant part of its regular maintenance work on a fixed-cost basis and the
advantageous cost economies realized in the operation of its fleet, comprised
solely of Boeing 747 aircraft which are configured for service in long-haul
cargo operations.
The Company's fleet currently consists of 22 Boeing 747-200 freighter
aircraft in service and two 747-200 passenger aircraft under lease to a third
party. The Company is negotiating for the early termination of these leases and
delivery to the Company of these aircraft for conversion from passenger to
freighter configuration. Five of the aircraft in the Company's existing fleet
are leased to the Company under leases that will expire on January 1, 1998. On
June 9, 1997, the Company entered into an agreement with Boeing to purchase 10
new 747-400 aircraft to be powered by engines acquired from GE, with an option
to purchase up to 10 additional 747-400 aircraft. The 747-400 aircraft has
significantly longer range, greater payload capability, lower maintenance costs
and increased fuel efficiency compared to the 747-200 freighter aircraft. The
Company expects to place the 747-400 aircraft in service with both existing and
prospective customers, who the Company believes should be willing to pay higher
ACMI Contract rates to achieve operating benefits derived from the unique
performance capabilities of the 747-400 aircraft.
747-400 AIRCRAFT ACQUISITION
On June 9, 1997 the Company entered into the Boeing Purchase Contract with
Boeing to purchase 10 new 747-400 aircraft to be powered by GE engines. The
747-400 aircraft are currently scheduled to be delivered as follows: 4 in 1998,
2 in 1999, 3 in 2000 and 1 in 2001. See "Risk Factors -- Availability of 747-400
Aircraft Financing; Delivery Delays." The Boeing Purchase Contract also provides
the Company with an option to purchase up to 10 additional 747-400 aircraft for
delivery from 1999 through 2002. As a result of the Company being the largest
purchaser of 747-400 aircraft to date, it was able to negotiate from both Boeing
and GE a significant discount off the aggregate list price of $1.7 billion for
the 10 747-400 aircraft, four installed engines per aircraft and five spare
engines. In addition, the Company also obtained certain ancillary products and
services at advantageous prices. The Boeing Purchase Contract requires that the
Company pay Pre-Delivery Deposits to Boeing prior to the delivery date of each
747-400 aircraft in order to secure delivery of the 747-400 aircraft and to
defray a portion of the manufacturing costs. The Company expects that the
maximum total amount of Pre-Delivery Deposits at any time outstanding will be
approximately $125 million, approximately $95.2 million of which was paid as of
September 22, 1997 by the Company from short-term indebtedness and available
cash.
The proceeds from the Offering of the Old Notes and cash flow from
operations were used, among other things, to repay short-term indebtedness
incurred by the Company to pay Pre-Delivery Deposits and will continue to be
used to make additional Pre-Delivery Deposits as they become due. As the 747-400
aircraft are purchased upon delivery and Pre-Delivery Deposits are refunded by
Boeing, the remaining proceeds from the Offering of the Old Notes may be used to
fund a portion of the total purchase price of the 747-400 aircraft or,
alternatively, for general corporate purposes by the Company. Additional
third-party financing will be required at the time of delivery of each of the
747-400 aircraft. The Company intends to secure such permanent financing from a
combination of aircraft financing transactions, including long-term fixed-rate
equipment trust certificates, leveraged lease financing, other long-term
purchase money security financing or debt or equity financing. There can be no
assurance that the Company will be able to obtain sufficient financing to fund
the
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<PAGE> 36
purchase of the 747-400 aircraft, or if such financing is available, that it
will be available on commercially reasonable terms.
ACMI CONTRACTS
The Company's ACMI Contracts with its customers, which accounted for 96% of
the Company's operating revenues in 1996, typically provide for its customers to
guarantee monthly minimum aircraft utilization levels at fixed hourly rates and
are typically in force for periods of one to five years, subject in certain
cases to early termination provisions. These contracts typically require that
the Company supply aircraft, crew, maintenance and insurance and that its
customers bear all other operating expenses, including fuel and fuel servicing;
marketing costs associated with obtaining cargo; airport cargo handling; landing
fees; ground handling, aircraft push-back and de-icing services; and specific
cargo and mail insurance. These contracts, therefore, minimize for the Company
the load factor and yield risk traditionally associated with the air cargo
business. The ACMI Contracts typically require minimum air freight capacity to
be provided to its customers by the Company. All of the Company's revenues, and
virtually all of its costs, are in U.S. dollars, thus avoiding currency risks
normally associated with doing business primarily overseas.
China Airlines, KLM and Lufthansa accounted for approximately 34%, 12% and
11%, of the Company's total revenues, respectively, for the year ended December
31, 1996. In addition, in the past, the Company has operated under short-term,
seasonal ACMI Contracts with FedEx and UPS and anticipates doing so in the
future from time to time.
Certain of the Company's ACMI Contracts allow the Company's customers to
cancel a maximum of 5% of the guaranteed hours of aircraft utilization over the
course of a year. The Company's customers most often exercise such cancellation
options early in the first quarter or late in the fourth quarter of the year,
when the demand for air cargo capacity has been historically low. The Company
has found that such cancellations provide a timely opportunity for the
scheduling of maintenance on its aircraft, to the extent possible. See
"-- Maintenance." The ACMI Contracts are typically in force for periods of one
to five years, subject in certain cases to early termination provisions. The
Company believes that its relationships with its customers are mutually
satisfactory, as evidenced by the fact that within the last three years, it has
renewed eight ACMI Contracts and added six ACMI Contracts with its existing
customers, although there can be no assurance that such contracts will not be
canceled in accordance with their terms.
All of the ACMI Contracts provide that each of the Company's aircraft be
deemed to be at all times under the exclusive operating control, possession and
direction of the Company and that, in order to service the routes designated by
the contract, the Company obtain the underlying authority from the governments
having jurisdiction over the route. See "-- Governmental Regulation."
Additionally, if the Company is required to use the customer's "call sign" in
identifying itself throughout its route, the customer must also have obtained
underlying authority from the governments having jurisdiction over the route.
Therefore, the Company's route structure is limited to areas in which it can
gain access from the relevant governments.
OTHER FLIGHT OPERATIONS
To the extent the Company has available excess aircraft capacity at any
time, it will seek to obtain ad hoc charter service contracts, which the Company
believes are generally readily available. In addition, in the past the Company
has provided service to FedEx and UPS pursuant to short-term, seasonal ACMI
Contracts during periods of excess aircraft capacity.
AIRCRAFT
The Company's utilization of Boeing 747 aircraft provides significant
marketing advantages because these aircraft, relative to most other cargo
aircraft that are commercially available, have higher maximum payload and cubic
capacities, and longer range. The uniformity of the Company's current Boeing
747-200 aircraft fleet allows for standardization in maintenance and crew
training, resulting in substantial cost savings in these areas. The new 747-400
aircraft are expected to have greater operational capabilities than the 747-200
aircraft and will allow the Company to continue to maintain its low cost
structure. The new aircraft's limited maintenance
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<PAGE> 37
requirements will provide a higher level of operational reliability with lower
maintenance costs during the early years of operation. This "maintenance
honeymoon" typically continues for at least five years. In addition, the
acquisition of the 10 747-400 aircraft will make Atlas the largest operator of
this aircraft type to date and will enable the Company to capitalize on
economies of scale from the standardization in maintenance and crew training.
Finally, by placing an order for 10 aircraft, the Company received a significant
discount off the aggregate list price from both Boeing and GE.
The following chart describes the Company's existing fleet, aircraft
currently undergoing or expected to undergo passenger to freighter modification
and the 747-400 aircraft subject to the Boeing Purchase Contract.
FLEET PROFILE
<TABLE>
<CAPTION>
NUMBER OF DATE OF
AIRCRAFT AIRCRAFT OWNED/LEASED MANUFACTURE
--------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Existing Fleet: 16 747-200 Owned(1) 1972-1986
5 747-200 Leased(2) 1974-1979
1 747-200 Leased(3) 1976
Modification Aircraft: 2 747-200 Owned(4) 1979
747-400 Aircraft: 10 747-400 Owned(5) 1998-2001
</TABLE>
- ---------------
(1) Six of these aircraft are leased from a wholly-owned subsidiary of the
Company, Atlas Freighter Leasing, Inc. under leases expiring May 2004. Four
of the aircraft are leased from a wholly-owned subsidiary of the Company,
Atlas Freighter Leasing II, Inc., under leases expiring May 2004. Two of
these aircraft are powered by Pratt & Whitney ("P&W") engines and fourteen
are powered by GE engines.
(2) These aircraft, all of which are powered by P&W engines, are sub-leased from
FedEx under leases expiring on January 1, 1998. While the Company does not
intend to renew these leases, it is currently discussing a short term
extension in order to operate the aircraft through the peak cargo service
season and be able to perform necessary maintenance in the first quarter
prior to returning the aircraft.
(3) This aircraft, powered by GE engines, is leased from a third party under a
lease expiring in March, 2010.
(4) These passenger aircraft, powered by GE engines, are under lease to PAL.
Upon termination of the PAL leases the aircraft will be delivered to Boeing
for conversion to freighter configuration.
(5) The Company has agreed to purchase from Boeing 10 new Boeing 747-400
aircraft, with an option to purchase an additional 10 aircraft. The first 10
aircraft are scheduled to be delivered as follows: 4 in 1998, 2 in 1999, 3
in 2000 and one in 2001. See "-- 747-400 Aircraft Acquisition."
The Company has been successful in securing new customers, or additional
arrangements with existing customers upon delivery dates of aircraft into the
fleet, or soon thereafter. However, from time to time, the Company accepts
delivery of aircraft that have not been committed to a particular ACMI Contract.
These aircraft have been utilized temporarily as replacement aircraft during
scheduled and unscheduled maintenance, as well as for ad hoc charter
arrangements. Although the Company intends to have new ACMI Contracts in place
upon delivery of aircraft, including the 747-400 aircraft, there can be no
assurance that such arrangements will have been made.
From time to time the Company engages in discussions with third parties
regarding possible acquisitions of aircraft that could expand the Company's
operations. The Company is in negotiations for the acquisition of additional
aircraft, principally for delivery to the Company in 1998 and beyond.
SALES AND MARKETING
From its offices in Colorado, New York, Miami and London, the Company
services its air cargo customers and solicits ACMI Contract business. The
Company's efforts to obtain new ACMI Contract business focus principally on
international airlines with established air cargo customers, high operating
costs and hub and spoke systems which gather cargo at a particular location and
who have the need for long-
31
<PAGE> 38
distance capacity to move such cargo to another distribution point. On occasion,
the Company may utilize independent cargo brokers to obtain new ACMI Contracts.
The Company markets its services by guaranteeing its customers a reliable,
low-cost dedicated aircraft with the capacity to ensure the efficient linkage of
such customers' distribution points without the customers' having to purchase
and maintain additional aircraft, schedule additional flights and add other
resources. The Company expects to place the 747-400 aircraft in service with
both existing and prospective customers, who the Company believes should be
willing to pay higher ACMI Contract rates to achieve operating benefits derived
from the unique performance capabilities of the 747-400 aircraft such as its
longer range, greater payload and increased fuel efficiency.
MAINTENANCE
Due to the average age of the Company's 747-200 aircraft, it is likely that
they will require greater maintenance than newer aircraft such as the 747-400
aircraft. See "-- Aircraft." Aircraft maintenance includes, among other things,
routine daily maintenance, maintenance every six weeks (an "A Check"),
significant maintenance work every 18 months (a "C Check") and a major
maintenance event (a "D Check") every five years or 25,000 flight hours,
whichever comes later if the aircraft is over the age of 18 years, or every 6
years or 25,000 flight hours, whichever comes later for aircraft under the age
of 18 years, with a maximum interval in either case of nine years. The Company
attempts to schedule major maintenance on its aircraft in the first quarter of
the calendar year, when the demand for air cargo capacity has historically been
low, taking advantage of cancellations of flights by the Company's customers
that generally occur most frequently during these periods.
Pursuant to a maintenance contract with KLM (the "Maintenance Contract") in
effect until January 2005, a significant part of the regular maintenance
(principally C Checks and engine overhauls, excluding D Checks) of certain of
the Company's aircraft and their GE engines is undertaken by KLM, primarily at
its headquarters located at Schiphol International Airport in Amsterdam, the
Netherlands. KLM supplies engineering and diagnostic testing for each aircraft
and its components in compliance with FAA and other applicable regulations. The
Maintenance Contract provides that KLM, subject to certain terms and conditions,
will perform repairs and maintenance of the Company's aircraft on the same basis
and order of priority as repairs to its own fleet. Such service is provided to
the Company at a cost, for which a large part is a fixed rate per flight hour,
subject to a 3.5% annual escalation factor for the first five years. P&W engines
are serviced elsewhere, each at a cost based upon the actual labor time and the
parts necessary for such service. Under the terms of the Maintenance Contract,
in the event that the Company wishes to maintain more than twelve of its
aircraft under such contract, the terms of the contract are subject to
adjustment by KLM. Twelve of the Company's aircraft are currently subject to the
Maintenance Contract. In addition, FedEx provides certain scheduled maintenance
on the aircraft it sub-leases to the Company.
In June 1996, the Company entered into a ten year engine maintenance
agreement with GE for the engine maintenance of up to 15 aircraft powered by
CF6-50E2 engines at a fixed rate per flight hour, subject to an annual formula
increase. The agreement commenced in the third quarter of 1996 with the
acceptance of engines associated with aircraft acquired in the third and fourth
quarter of 1996. Effective in the year 2000, the Company has an option to add
not less that 40 engines to the program.
For certain periods, the 747-400 aircraft's airframe and engines will be
covered under manufacturer's warranties. As a result, the Company does not
expect to incur significant maintenance expense in connection
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<PAGE> 39
with the 747-400 aircraft during the warranty period. In addition, the 747-400
aircraft's limited maintenance requirements will provide a higher operational
reliability with lower maintenance costs during the early years of operation.
This "maintenance honeymoon" typically continues for at least five years. The
Company will incur expenses associated with routine daily maintenance of both
the airframe and the engines. In connection with the GE engine purchase
agreement, the Company is currently in negotiations with GE to provide ongoing
maintenance on the 747-400 aircraft engines.
The Company has an agreement, subject to acceptable rates, terms and
conditions, with Alitalia to utilize, or find other parties to utilize, an
amount of Alitalia's maintenance services with an aggregate cost of $25 million
over a five-year period ending in June 2000. The Company believes that
fixed-cost contracts such as this one provides the most efficient means of
ensuring the continued service of its aircraft fleet and the most reliable way
by which to predict its maintenance costs; however, the Company believes it is
more cost effective for routine line maintenance and A Checks to be performed on
a time and labor basis due to the frequency of such maintenance. The Company
also has a contract with B.F. Goodrich Co. to perform maintenance on its brakes
and for the replacement of tires.
GOVERNMENTAL REGULATION
Under the Aviation Act, the DOT and the FAA exercise regulatory authority
over the Company. DOT's jurisdiction extends primarily to economic issues
related to the air transportation industry, including, among other things, air
carrier certification and fitness, insurance, certain leasing arrangements, the
authorization of proposed scheduled and charter operations, tariffs, consumer
protection, unfair methods of competition, unjust discrimination and deceptive
practices. The FAA's regulatory authority related primarily to air safety,
including aircraft certification and operations, crew licensing/training and
maintenance standards.
To provide air cargo transportation services under long-term contracts with
major international airlines, the Company relies primarily on its worldwide
charter authority. The Company requires separate DOT and FAA approval for each
long-term ACMI Contract. In addition, FAA approval is required for each of the
Company's short-term, seasonal ACMI Contracts.
In order to engage in its air transportation business, the Company is
required to maintain a Certificate of Public Convenience and Necessity (a
"CPCN") from DOT. Prior to issuing a CPCN, DOT examines a company's managerial
competence, financial resources and plans and compliance disposition in order to
determine whether a carrier is fit, willing and able to engage in the
transportation services it has proposed to undertake, and whether a carrier
conforms with the Aviation Act requirement that the transportation services
proposed are consistent with the public convenience and necessity. Among other
things, a company holding a CPCN must qualify as a United States citizen, which
requires that it be organized under the laws of the United States or a State,
territory or possession thereof; that its chief executive officer and at least
two-thirds of its Board of Directors and other managing officers be United
States citizens; that not more than 25% of its voting stock be owned or
controlled, directly or indirectly, by foreign nationals; and that it not
otherwise be subject to foreign control. The DOT may impose conditions or
restrictions on such a CPCN.
DOT has issued the Company a CPCN to engage in interstate and overseas air
transportation of property and mail, and a CPCN to engage in foreign air
transportation of property and mail between the U.S. and Taiwan. Both CPCNs are
subject to standard terms, conditions and limitations. By virtue of holding
those CPCNs, the Company also possesses worldwide charter authority. It also
holds limited-term DOT exemption authority to engage in scheduled air
transportation of property and mail between certain points in the U.S. and Hong
Kong.
International air services are generally governed by a network of bilateral
civil air transport agreements in which rights are exchanged between
governments, which then select and designate air carriers authorized to exercise
such rights. Insofar as scheduled service is involved, bilateral agreements may
prohibit services to certain countries. For countries in which service is
authorized these bilateral agreements specify the city-pair markets that may be
served; may restrict the number of carriers that may be designated; may provide
for prior approval by one or both governments of the prices the carriers may
charge; may limit frequencies or the amount of capacity to be offered in the
market; and, in various other ways, may impose limitations on the
33
<PAGE> 40
operations of air carriers. To obtain authority under a bilateral agreement, it
is often necessary to compete against other carriers in a DOT proceeding. At the
conclusion of the proceeding, DOT awards all route authorizations. The
provisions of bilateral agreements pertaining to charter services vary
considerably from country to country. Some agreements, such that between the
U.S. and Brazil, limit the number of charter flights that carriers of each
country may operate. The Company is subject to various international bilateral
air services agreements between the U.S. and the countries to which the Company
provides service. The Company also operates on behalf of foreign flag air
carriers between various foreign points without serving the U.S. These services
are subject to the bilateral agreements of the respective governments.
Furthermore, these services require FAA approval but not DOT approval. The
Company must obtain permission from the applicable foreign governments to
provide service to foreign points.
The Company has obtained an operating certificate issued by the FAA
pursuant to Part 121 of the Federal Aviation Regulations. The FAA has
jurisdiction over the regulation of flight operations generally, including the
licensing of pilots and maintenance personnel; the establishment of minimum
standards for training and retraining; maintenance of technical standards for
flight, communications and ground equipment; security programs; and other
matters affecting air safety. In addition, the FAA mandates certain
recordkeeping procedures. The Company must obtain and maintain FAA certificates
of airworthiness for all of its aircraft. The Company's aircraft, flight
personnel and flight and emergency procedures are subject to periodic
inspections and tests by the FAA. All air carriers are subject to the strict
scrutiny of FAA officials to ensure proper compliance with FAA regulations.
The DOT and the FAA have authority under the Aviation Safety and Noise
Abatement Act of 1979, as amended and recodified, and under the Airport Noise
and Capacity Act of 1990, to monitor and regulate aircraft engine noise. All of
the Company's existing fleet of aircraft comply with Stage III Standards -- the
highest standard issued by the FAA.
Under the FAA's Directives issued under its "Aging Aircraft" program, the
Company is subject to extensive aircraft examinations and may be required to
undertake structural modifications to address the problems of corrosion and
structural fatigue. In November 1994, Boeing issued Nacelle Strut Modification
Service Bulletins which have been converted into Directives by the FAA. Twelve
of the Company's 747-200 aircraft will have to be brought into compliance with
such Directives within the next three years at an estimated cost of
approximately $6.0 million. As part of the FAA's overall aging aircraft program,
it has issued Directives requiring certain additional aircraft modifications to
be accomplished prior to the aircraft reaching 20,000 cycles. The average cycle
time for the 17 aircraft in service (excluding the aircraft sub-leased from
FedEx) is approximately 12,000 cycles and the average cycles operated per year
is approximately 800 cycles. The Company estimates that the modification costs
per aircraft will range between $2 million and $3 million. Between now and the
year 2000, only one aircraft is expected to reach the 20,000 cycle limit and 9
additional aircraft will require modification prior to the year 2009. The
remaining 7 aircraft in service (excluding the aircraft sub-leased from FedEx)
have already undergone such modifications. Other Directives have been issued
that require inspections and minor modifications to Boeing 747-200 aircraft. It
is possible that additional Directives applicable to the types of aircraft or
engines included in the Company's fleet could be issued in the future, the cost
of which could be substantial.
The Company is also subject to the regulations of the Environmental
Protection Agency regarding air quality in the U.S. With respect to aircraft
that it operates, the Company meets the fuel venting requirements and smoke
emissions standards established by the Environmental Protection Agency.
COMPETITION
The market for air cargo services is highly competitive. A number of
airlines currently provide services for themselves and for others similar to the
services offered by the Company and new airlines may be formed that would also
compete with the Company. Such airlines may have substantially greater financial
resources that the Company. The Company believes that the most important bases
for competition in the air cargo business are the range, payload and cubic
capacities of the aircraft and the price, flexibility, quality and reliability
of service. The ability of the Company to achieve its strategic plan depends
upon its success in convincing major international airlines that outsourcing
some portion of their air cargo business remains more cost-effective
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<PAGE> 41
than undertaking cargo operations with their own incremental capacity and
resources and the ability of the Company to obtain higher ACMI Contract rates in
connection with the 747-400 aircraft compared to those currently obtained in
connection with existing 747-200 aircraft. The Company believes that such higher
rates will be available as a result of the unique operating benefits associated
with the 747-400 aircraft. These operational benefits include a longer range,
greater payload capability and increased fuel efficiency relative to the 747-200
aircraft.
FUEL
Although fuel costs are typically the largest operating expense for
companies providing air services, the Company has limited exposure to the
volatility of fuel costs and disruptions in fuel supply as a result of its ACMI
Contracts, whereby the Company's customers bear the fuel costs and concomitant
risks thereof. However, an increase in fuel costs could reduce the Company's
cost advantages because of its older 747-200 aircraft fleet, which are not as
fuel-efficient as newer cargo aircraft such as the 747-400 aircraft. In
addition, to the extent the Company operates scheduled cargo or ad hoc charter
services, or ferries its aircraft, it would be responsible for fuel and other
costs that are normally borne by its customers through its ACMI Contracts. In
1996, approximately 3% of the Company's block hours represented scheduled cargo,
ad hoc charter services or ferrying its aircraft for its own account. The
Company may, for periods of time, have excess capacity, in which case it may
deploy such aircraft in scheduled cargo or ad hoc charter services, pending
dedication of the aircraft to an ACMI Contract.
EMPLOYEES
As of June 30, 1997, the Company had 590 employees, 361 of whom were air
crew members. In connection with the increase in its fleet, the Company hired a
substantial number of additional pilots during 1996. The Company may hire more
pilots in 1997 and 1998 associated with the delivery of additional aircraft,
including the 747-400 aircraft. The Company maintains a comprehensive training
program for its pilots in compliance with FAA requirements in which each pilot
regularly attends update programs. The Company believes that its current
training program can be sufficiently modified to provide training required for
pilots for the 747-400 aircraft. In addition, as part of the Boeing Purchase
Contract, to defray a portion of the costs, Boeing will train the Company's
pilots and crew to be assigned to the 747-400 aircraft. However, the Company may
incur incremental costs associated with ongoing training with regard to the
747-400 aircraft.
The Company believes that its employees' participation in the growth and
profitability of its business is essential to maintain its productivity and low
cost structure, and has therefore established programs for that purpose such as
a profit sharing plan, a stock purchase plan, and a Company percentage
contribution of the employee deferral contribution to a retirement plan
(Internal Revenue Code of 1986, as amended, Section 401(k) plan). Such programs
are designed to allow employees to share financially in the Company's success
and to augment base salary levels and retirement income.
The Company's labor relations are covered under Title II of the Railway
Labor act of 1926, as amended, and are subject to the jurisdiction of the
National Mediation Board. None of the Company's employees is subject to a
collective bargaining agreement; however, many airline industry employees are
subject to such agreements and the Company's employees have been and are
routinely solicited by union representatives seeking to organize them. The
Company considers its relations with its employees to be good.
INSURANCE
The Company is vulnerable to potential losses which may be incurred in the
event of an aircraft accident. Any such accident could involve not only repair
or replacement of a damaged aircraft and its consequent temporary or permanent
loss from service, but also potential claims involving injury to persons or
property. The Company is required by DOT to carry liability insurance on each of
its aircraft, and each of the Company's aircraft leases and ACMI Contracts also
requires the Company to carry such insurance. While the Company carries this
insurance, any extended interruption of the Company's operations due to the loss
of an aircraft could have a material adverse effect on the Company. The Company
currently maintains public
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<PAGE> 42
liability and property damage insurance and aircraft hull and liability
insurance for each of the aircraft in the fleet in amounts consistent with
industry standards. The Company maintains baggage and cargo liability insurance
if not provided by its customers under ACMI Contracts. Although the Company
believes that its insurance coverage is adequate, there can be no assurance that
the amount of such coverage will not be changed upon renewal or that the Company
will not be forced to bear substantial losses from accidents. Substantial claims
resulting from an accident could have a material adverse effect on the Company's
financial condition and could affect the ability of the Company to obtain
insurance in the future. The Company believes that it has good relations with
its insurance providers.
FACILITIES
The Company's principal executive offices are located in a 7,000 square
foot office building owned by the Company at 538 Commons Drive, Golden,
Colorado. The Company also rents 2,500 square feet of adjacent office space in
Golden, Colorado.
The Company presently occupies a 21,000 square foot facility located at
John F. Kennedy Airport ("JFK"). This facility includes administrative offices,
maintenance work areas and hangar and parts storage facilities, as well as
flight dispatch operations. The Company occupies this facility pursuant to a
lease agreement with Japan Airlines ("JAL") for a five-year period with two
five-year renewal rights from JAL, which began on June 1, 1995, at a monthly
rate of approximately $41,000. The Company believes the JAL facility is adequate
to support the near term growth in operations that will result from the
anticipated acquisition of additional aircraft. In addition, the Company leases
7,750 square feet of warehouse space at JFK for the storage of aircraft
components, tires and other aircraft related equipment. The monthly lease rate
is $5,000. The initial lease term expires at the end of September 1997, with
rights for two five-year renewal periods.
Due to increased operations at Miami International Airport, the Company
entered into a month-to-month office lease and a month-to-month warehouse lease
with Dade County, Florida in March 1997. The leased warehouse space will be used
to store aviation equipment and aircraft components used to maintain aircraft
operated by the Company.
LEGAL PROCEEDINGS
On February 24, 1997, the Company filed a complaint for declaratory
judgment in the Colorado District Court, Jefferson County against Israel
Aircraft Industries Ltd. ("IAI") for mechanical problems the Company experienced
with respect to the aircraft the Company sub-leased from IAI. The Company is
seeking approximately $1 million in damages against IAI to be offset by the
amount, if any, the Company owes IAI pursuant to the sub-lease. IAI had the case
removed to the U.S. District Court, District of Colorado on April 21, 1997 and
filed a separate complaint against the Company on April 24, 1997 in the U.S.
District Court, Eastern District of New York alleging damages of approximately
$9 million based on claims arising from the sub-lease. The Company intends to
vigorously defend against all of IAI's claims.
In March 1997, Air Support International, Inc. ("ASI") filed a complaint
against the Company in the U.S. District Court, Eastern District of New York
alleging actual and punitive damages of approximately $13.5 million arising from
the Company's refusal to pay commissions which ASI claims it is owed for
allegedly arranging certain ACMI Contracts. The Company intends to vigorously
defend against all of ASI's claims.
While the Company is from time to time involved in litigation in the
ordinary course of its business, there are no other material legal proceedings
pending against the Company or to which any of its property is subject.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Michael A. Chowdry................................... Chairman of the Board, Chief Executive
Officer, President and Director
Richard H. Shuyler................................... Senior Vice President -- Finance, Chief
Financial Officer, Treasurer and Director
Nesa E. Hassanein.................................... Senior Vice President and General Counsel
James T. Matheny..................................... Senior Vice President -- Operations
R. Terrence Rendleman................................ Senior Vice President -- Flight and Technical
Operations
Stanley G. Wraight................................... Senior Vice President -- Marketing
Berl Bernhard........................................ Director
James J. Blanchard................................... Director
Lawrence W. Clarkson................................. Director
David T. McLaughlin.................................. Director
Brian Rowe........................................... Director
</TABLE>
Michael A. Chowdry, 42, has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since its inception in August 1992, and
served as President from July 1995 to May 1996 and resumed the office of
President in September 1997. He is also Chairman of the Board (since its
inception in April 1985) of Aeronautics Leasing, Inc., an affiliate of the
Company ("ALI"). Prior to his founding of ALI, he formed a Colorado-based
certificated commuter air carrier in 1981, and was the principal stockholder of
Skybus, Inc., the certificated air carrier successor to Frontier Horizon
Airlines, from 1984 to 1985. He has been involved in the operation, acquisition,
financing and disposition of aircraft and aviation assets since 1978.
Richard H. Shuyler, 50, has been a member of the Company's Board of
Directors since March 1995 and has been Senior Vice President -- Finance, Chief
Financial Officer and Treasurer of the Company since June 1994. From January
1993 to June 1994, he was Senior Vice President -- Finance and Chief Financial
Officer at Trans World Airlines, Inc. ("TWA"). From 1975 to 1992, he held
various management and executive positions with Continental Airlines, Inc., and
various of its affiliates and corporate predecessors, including Texas
International Airlines, Inc., Texas Air Corporation and New York Air, serving as
Senior Vice President -- Finance and Chief Financial Officer at those entities.
TWA filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on
June 30, 1995.
Nesa E. Hassanein, 44, has been Senior Vice President and General Counsel
of the Company since August 1997. From January 1995 to July 1997, Ms. Hassanein
was a partner at the law firm of Morrison & Foerster LLP in their Denver,
Colorado office. Before joining Morrison & Foerster, she was a shareholder in
the law firm of Brownstein, Hyatt, Farber & Strickland in Denver from January
1992 to January 1995. Prior to that time she was associated with the law firm of
Skadden, Arps, Slate, Meagher & Flom in their New York office from September
1982 to May 1991. Throughout her legal career, Ms. Hassanein's practice has
focused on specializing in corporate and securities law.
James T. Matheny, 58, has been Senior Vice President -- Operations of the
Company since December 1992. From 1991 to 1992, he was Director -- Quality
Assurance and subsequently, Vice President -- Maintenance and Engineering for
Eastern Airlines, Inc. From 1961 to 1991, he served in the United States Navy,
rising to Commanding Officer of an aircraft squadron, two air wings and an
aircraft carrier, and Operations Officer of the Seventh Fleet based in Japan.
R. Terrence Rendleman, 52, has been Senior Vice President -- Technical
Services and Flight Operations since January 1, 1997. From June 1993 to December
1996, he was Senior Vice President for Maintenance
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Operations at United Airlines. Prior to that, he served as Senior Vice
President -- Technical Operations at Northwest Airlines from April 1985 to June
1993. From January 1983 to April 1985, he served as Vice President of
Engineering and Maintenance at Braniff Airlines, where he was a Boeing 727 pilot
from 1979 to 1983.
Stanley G. Wraight, 50, has been Senior Vice President -- Marketing since
May 1997. From 1995 to 1997, he led KLM's worldwide sales efforts. From 1965 to
1995, he was employed by KLM in various capacities, including Vice President of
KLM's sales, marketing and operations in Asia, Australia and the Middle East.
Berl Bernhard, 68, has been a member of the Washington based law firm of
Verner, Liipfert, Bernhard, McPherson and Hand since 1960 and has served as its
Chairman since 1982. He was nominated by President Kennedy and confirmed by the
Senate in 1961 to serve as Staff Director of the U.S. Commission on Civil
Rights. He was Special Advisor to Secretary of State Dean Rusk and Under
Secretary of State W. Averell Harriman (1963-65), and was Senior Advisor to
Secretary of State Edmund S. Muskie (1980-81). He also served as a Trustee of
Dartmouth College (1974-1984). He acted as special counsel to the Trustees of
Eastern Airlines and special counsel to the Chairman of Northwest Airlines, and
served as Trustee of the Federal City Council from 1988-1992. Mr. Bernhard
served as Chairman of the Aspen Institute from 1991-1996 as well as Chairman of
its Executive Committee. He was a director of Uniroyal Chemical Company, Inc.
and UNC Inc.
James J. Blanchard, 55, was United States Ambassador to Canada from August
1993 until April 1996. From 1991 to 1993, he was a partner in the Washington,
D.C. law firm of Verner, Liipfert, Bernhard, McPherson and Hand. He served as
Governor of Michigan for eight years (1983-1991). From 1975 to 1983 he served as
a member of the United States House of Representatives. Before election to
Congress, Ambassador Blanchard was Assistant Attorney General of Michigan
(1969-1974). He has been awarded the State Department's Foreign Affairs Award
for Public Service and the International Freedom Festival's Freedom Award.
Lawrence W. Clarkson, 59, has been President of Boeing Enterprises since
February 1997, where he is responsible for establishing and directing new
commercial airplane-related business acquisitions, joint ventures response and
other relationships outside of the traditional business scope of Boeing. Since
April 1992 he has also been a Senior Vice President of Boeing. He previously
held various management and executive positions with Boeing which he joined in
1987. Prior to that, for twenty years he held various management and executive
positions with Pratt & Whitney. He serves as Vice Chairman of the National
Bureau of Asian Research, Chairman of U.S. -- Pacific Economic Cooperation
Council and Chairman of the National Center for APEC, and as a Director of the
U.S. -- China Business Council, the National Association of Manufacturers and
the Atlantic Council. He also serves on the U.S. -- Japan Joint High Level
Advisory Panel and is a member of the Council on Foreign Relations, the Pacific
Council on International Policy and the National Research Council -- Committee
on Japan.
David T. McLaughlin, 65, has been a member of the Company's Board of
Directors since September 1995. He has been President and Chief Executive
Officer of The Aspen Institute since his appointment in 1988, as well as
Chairman of its Board of Trustees since 1994. From 1972 to 1977 he served as
Chief Executive Officer of The Toro Company, and served as its Chairman from
1977 to 1981. From 1981 to 1987, he served as president of Dartmouth College. He
is currently a director of ARCO, Chase Manhattan Corporation, Westinghouse
Electric Corporation, CBS Inc., Standard Fusee Corporation, and PartnerRe, Inc.
and serves as a member of the Board of Trustees of the Asia Foundation Center
for Asian Pacific Affairs.
Brian Rowe, 66, has been a member of the Company's Board of Directors since
March 1995. He retired as Chairman of the General Electric Aircraft Engines
division of the General Electric Company in January 1995, a position he held
since September 1993, where he was in charge of world-wide sales of GE engines.
Prior to that, he held various management and executive positions with General
Electric, which he joined in 1957, including President of General Electric
Aircraft Engines (from 1979 to 1993), Vice President and General Manager of the
Aircraft Engineering Division (from 1976 to 1979), Vice President and General
Manager of the Airline Programs Division (from 1974 to 1976) and Vice President
and General Manager of the Commercial Engine Projects Division (from 1972 to
1974).
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DESCRIPTION OF CERTAIN INDEBTEDNESS
AMENDED AIRCRAFT CREDIT FACILITY
In September 1997, the Company amended and restated the Aircraft Credit
Facility with Bankers Trust Company ("BTCo"), an affiliate of the Initial
Purchaser, as Administrative Agent and other lenders party thereto. Proceeds may
be drawn under the Aircraft Credit Facility, subject to certain conditions to
borrowing, to finance the acquisition and conversion of aircraft (including
spare engines). The aggregate amount drawn under the Aircraft Credit Facility
(including existing loans not refinanced under the AFL II Term Loan Facility)
shall not exceed $250 million. The Aircraft Credit Facility includes a two-year
revolving period followed by a three-year term loan period. At the time of each
borrowing, the Company has the option to select either a Base Rate Loan (prime
rate, plus 1.50% during the revolving period, thereafter 2.00%) or a Eurodollar
Rate Loan (Eurodollar rate, plus 2.50% during the revolving period, thereafter
3.00%). Loans currently outstanding under the existing Aircraft Credit Facility
not refinanced by the AFL II Term Loan Facility were amended to conform to the
same terms. The Aircraft Credit Facility also contains provisions for credit
spread reductions of up to 0.75% based on financial performance and credit
spread reductions of up to 0.50% based upon the Company achieving ratings
upgrades with respect to its Equipment Notes.
Each loan under the Aircraft Credit Facility is secured by first priority
security interests in the flight equipment financed thereby. In addition, each
of the aircraft securing the Aircraft Credit Facility is and will be subject to
a second priority security interest securing all other obligations of the
Company under the Aircraft Credit Facility. The Aircraft Credit Facility also
contains certain preconditions and limitations to drawdown under the facility.
The Notes rank pari passu with the Aircraft Credit Facility and all other senior
indebtedness of the Company with respect to right of payment but the Notes are
subordinated in liquidation to the Aircraft Credit Facility with respect to the
assets securing the Aircraft Credit Facility.
The Aircraft Credit Facility contains certain covenants which require
specific levels of insurance, as well as requirements regarding possession,
maintenance, and lease or transfer of the flight equipment financed thereby. The
Aircraft Credit Facility also contains certain covenants, similar to those
currently existing, that will restrict the Company from taking various actions
and that will require the Company to achieve and maintain certain financial
covenants. The Aircraft Credit Facility includes financial covenants relating to
minimum interest coverage, maximum leverage and minimum net worth, and other
covenants providing for limitations on indebtedness, liens, investments,
contingent obligations, restricted junior payments, capital expenditures and
leases. The Aircraft Credit Facility also prohibits the Company from prepaying
the Notes and prohibits certain changes in control of the Company.
The Aircraft Credit Facility contains events of default similar to those
currently existing, including nonpayment of principal, interest or fees,
violation of covenants, inaccuracy of representations or warranties in any
material respect, cross default to other indebtedness, bankruptcy, ERISA,
environmental matters, material judgments and material liabilities and change of
control.
AFL TERM LOAN FACILITY
In May 1997, AFL, a wholly-owned subsidiary of the Company, entered into
the $185 million AFL Term Loan Facility to refinance six Boeing 747-200 aircraft
(the "AFL Aircraft") previously owned by the Company through another whollyowned
subsidiary of the Company. The six aircraft were previously financed via loan
agreements with International Nederlanden Bank N.V. and Deutsche Lufthansa AG,
each of which were repaid with the proceeds from the AFL Term Loan Facility and
cash from the Company. The AFL Aircraft are leased by AFL to the Company via six
separate triple-net operating leases (the "AFL Leases") for a lease term of
seven years. The Company has the right to purchase the AFL Aircraft at the end
of the term of the AFL Leases for then-current fair market value. The seven-year
AFL Term Loan Facility includes quarterly principal amortization beginning in
February 1998 and contains a balloon payment due upon maturity in May 2004. The
facility bears interest at the three-month Eurodollar rate plus 2.50%, until May
2001 and 3.00% thereafter, unless the Company has achieved certain ratings
upgrades on its Equipment Notes. The AFL Term Loan Facility is secured by a
first priority security interest in the AFL Aircraft and the
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<PAGE> 46
rights of AFL under the AFL Leases. The AFL Term Loan Facility contains certain
covenants and restrictions applicable to AFL, including limitations on
indebtedness, liens, investments, continent obligations, restricted junior
payments, asset sales and acquisitions, amendments to material agreements,
leases, transactions with affiliates and the conduct of business. The AFL Leases
contain certain covenants and restrictions applicable to the Company, including
limitations on indebtedness, liens, investments, contingent obligations,
restricted junior payments, asset sales and acquisitions, amendments to material
agreements, leases, transactions with affiliates and the conduct of business and
the maintenance of certain financial ratios. In connection with the
Refinancings, the financial covenants in the AFL Leases were amended to
facilitate the financing of the 747-400 aircraft.
AFL II TERM LOAN FACILITY
In September 1997, the Company, through a newly formed, wholly-owned
unrestricted subsidiary, Atlas Freighter Leasing II, Inc. ("AFL II"), entered
into a credit agreement providing for a new approximately seven-year amortizing
AFL II Term Loan Facility with BTCo, an affiliate of the Initial Purchaser, as
Administrative Agent and other lenders party thereto. The initial principal
amount of the AFL II Term Loan Facility was $185 million. Proceeds drawn under
the AFL II Term Loan Facility were used by the Company to refinance certain
amounts then outstanding under the existing Aircraft Credit Facility which were
secured by four Boeing 747-200 aircraft and nine spare GE engines (the "AFL II
Equipment"). The AFL II Equipment is leased by AFL II to the Company via
separate triple-net operating leases (the "AFL II Leases") for a lease term
ending May 29, 2004. The Company has the right to purchase the AFL II Equipment
at the end of the term of the AFL II Leases for then-current fair market value.
The AFL II Term Loan Facility matures concurrently with the expiration of the
lease term of the AFL II Leases on May 29, 2004 and calls for quarterly
amortization of principal beginning February 28, 1998 with a balloon payment due
at maturity. The AFL II Term Loan Facility bears interest at the three-month
Eurodollar rate plus 2.25%. The AFL II Term Loan Facility also contains a
provision for credit spread reductions of up to 0.25% based upon financial
performance.
The obligations under the AFL II Term Loan Facility are secured by a first
priority security interest in the AFL II Equipment and the rights of AFL II
under the AFL II Leases.
The AFL II Term Loan Facility contains certain covenants and restrictions
applicable to AFL II, including limitations on indebtedness, liens, investments,
contingent obligations, restricted junior payments, asset sales and
acquisitions, amendments to material agreements, leases, transactions with
affiliates and the conduct of business. The AFL II Leases contain certain
covenants and restrictions applicable to the Company, similar to those contained
in the AFL Leases, including limitations on indebtedness, liens, investments,
contingent obligations, restricted junior payments, asset sales and
acquisitions, amendments to material agreements, leases, transactions with
affiliates and the conduct of business and the maintenance of certain financial
ratios. The AFL II Leases prohibit the Company from prepaying the Notes and to
prohibit certain changes in control of the Company.
The AFL II Term Loan Facility contains events of default similar to those
in the AFL Term Loan Facility, including nonpayment of principal, interest or
fees, violation of covenants, inaccuracy of representations or warranties in any
material respect, cross default to the AFL II Leases, bankruptcy, ERISA,
environmental matters, material judgments and material liabilities and change of
control. Similarly, the AFL II Leases contain events of default similar to those
in the AFL Leases, including nonpayment of rent, failure to comply with
maintenance standards, inadequacy of insurance, violation of covenants,
inaccuracy of representations or warranties in any material respect, bankruptcy,
ERISA, material judgments, cross default to certain other indebtedness of the
Company and change of control.
EQUIPMENT NOTES
In November 1995, the Company issued $100 million of senior secured notes
due December 1, 2002 (the "Equipment Notes") through a pass through trust (the
"Pass Through Trust") formed with the sole purpose to hold the Equipment Notes.
Certificates (the "Pass Through Certificates") representing a fractional
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<PAGE> 47
undivided interest in the Pass Through Trust were issued concurrently with the
issuance of the Equipment Notes. The Equipment Notes bear interest at 12.25% per
annum with interest payment dates on June 1 and December 1. The Equipment Notes
are secured by three Boeing 747-200 aircraft (the "Equipment Note Aircraft")
fully modified to freighter configuration. The Company is required to provide
for the retirement of one third of the aggregate principal amount of the
Equipment Notes on December 1 in each of 2000 and 2001 through the operation of
a sinking fund at a redemption price of 100% of the principal amount thereof,
together with accrued interest thereon to the redemption date. The Equipment
Notes are redeemable, in whole or in part, at the option of the Company on or
after December 1, 1998 at redemption prices (expressed as a percentage of the
principal amount) declining annually over a three-year period from 108.000% to
100.000%, together with accrued and unpaid interest, if any, to the redemption
date. If a Change of Control (as defined therein) occurs, each holder of the
Pass Through Certificates has the right to require that the Company purchase
such holder's Pass Through Certificates, in whole or in part in integral
multiples of $1,000, in cash in an amount equal to 101% of the principal amount
of such Pass Through Certificates. If an Event of Loss (as defined therein)
occurs with respect to any of the Equipment Note Aircraft, the Company is
required to either redeem the Equipment Notes issued with respect to such
Equipment Note Aircraft, or provide a Substitute Collateral Aircraft (as defined
therein). The Equipment Notes are senior secured obligations of the Company and
rank pari passu in right of payment with all other existing and future senior
obligations of the Company and rank senior in right of payment to all
subordinated indebtedness of the Company. The indenture governing the Equipment
Notes contains covenants relating to the Equipment Note Aircraft which require
specific levels of insurance, as well as requirements regarding liens on and
possession, maintenance, and lease or transfer of the Equipment Note Aircraft.
In addition, the indenture contains certain covenants, including limitations on
the incurrence of debt, restricted payments, certain investments, transactions
with affiliates, asset sales and mergers and consolidations.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF EXCHANGE OFFER
The Old Notes were sold by the Company on August 13, 1997 to the Initial
Purchaser, who placed the Old Notes with certain institutional investors. In
connection therewith, the Company and the Initial Purchaser entered into the
Registration Rights Agreement, pursuant to which the Company agreed, for the
benefit of the holders of the Old Notes, that the Company would, at its sole
cost, (i) within 45 days following the original issuance of the Old Notes, file
with the Commission the Exchange Offer Registration Statement (of which this
Prospectus is a part) under the Securities Act with respect to an issue of a
series of new notes of the Company identical in all material respects to the
series of Old Notes and (ii) use its best efforts to cause such Exchange Offer
Registration Statement to become effective under the Securities Act within 150
days following the original issuance of the Old Notes. Upon the effectiveness of
the Exchange Offer Registration Statement (of which this Prospectus is a part),
the Company will offer to the holders of the Old Notes the opportunity to
exchange their Old Notes for a like principal amount of New Notes, to be issued
without a restrictive legend and which may be reoffered and resold by the holder
without restrictions or limitations under the Securities Act. The term "holder"
with respect to any Note means any person in whose name such Note is registered
on the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on December 4, 1997; provided, however, that if the Company, in
its sole discretion, has extended the period of time during which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
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As of the date of this Prospectus, $150,000,000 aggregate principal amount
of Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about November 5, 1997, to all holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain customary
conditions as set forth below under "-- Certain Conditions to the Exchange
Offer."
The Company expressly reserves the right, at any time and from time to
time, to extend the period of time during which the Exchange Offer is open, and
thereby to delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders of the Old Notes as described
below. During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
Any Old Notes not accepted for exchange for any reason will be returned without
expense to the tendering holders thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of $1,000
or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions to the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. The tender to the Company of Old Notes by a holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal, including
all other documents required by such Letter of Transmittal, to State Street Bank
& Trust Company (the "Exchange Agent") at one of the addresses set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner of Old Notes whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company, or other nominee and
who wishes to tender such Old Notes in the Exchange Offer should contact the
registered holder promptly and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to tender on its own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such beneficial owner's Old Notes, either
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make appropriate arrangements to register ownership of such Old Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
(see "-- Guaranteed Delivery Procedures") unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the Old
Notes who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guaranties must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program or the Stock Exchanges
Medallion Program (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by or be
accompanied by a written instrument or instruments of transfer or exchange in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder exactly as the name or names of the registered
holder or holders appear on the Old Notes with the signature thereon guaranteed
by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes not properly tendered or the acceptance of which might, in
the judgment of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or conditions
of the Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation by the
Company of the terms and conditions of the Exchange Offer as to any particular
Old Notes either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within such reasonable period of time as
the Company shall determine. None of the Company, the Exchange Agent or any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
By tendering Old Notes for exchange, each holder will represent to the
Company that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to engage or participate in a distribution of the
New Notes. If any holder or any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company or is engaged in or intends
to engage in, or has an arrangement or understanding with any person to
participate in, a distribution of such New Notes to be acquired pursuant to the
Exchange Offer, such holder or any such other person (i) may not rely on the
applicable interpretation of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such brokerdealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of
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Distribution." The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company will be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid, from
August 13, 1997. Old Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer. Holders whose Old
Notes are accepted for exchange will not receive any payment in respect of
accrued interest on such Old Notes otherwise payable on any interest payment
date for which the record date occurs on or after consummation of the Exchange
Offer. Old Notes not tendered or not accepted for exchange will continue to
accrue interest from and after the date of consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry procedures described
below, and any financial institution that is a participant in the Book-Entry
Transfer Facility's systems may make book-entry delivery of Old Notes by causing
the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or a facsimile thereof,
with any required signature guarantees and any other required documents, must in
any case, be transmitted to and received by the Exchange Agent at the addresses
set forth below under "-- Exchange Agent" on or prior to the Expiration Date or
the guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) on or prior to 5:00 P.M., New York City
time, on the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the holder of the Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteed that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
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<PAGE> 51
all physically tendered Old Notes, in paper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "- Exchange Agent." Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes to
be withdrawn, identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes), and (where certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then prior to
the release of such certificates the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution in which case such guarantee will
not be required. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination will be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Rights Agreement, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes, and may terminate or amend the Exchange Offer, if, at any time
before the acceptance of such New Notes for exchange, any of the following
events shall occur:
(a) any injunction, order or decree shall have been issued by any
court or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company;
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company;
(d) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
(e) the Exchange Offer will violate any applicable law or any
applicable interpretation of the staff of the Commission.
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<PAGE> 52
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time in
its sole discretion. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order is threatened by the Commission or in effect with
respect to the Registration Statement of which this Prospectus is a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
The Exchange Offer is not conditioned on any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
The State Street Bank & Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests or Notices of Guaranteed
Delivery should be directed to the Exchange Agent addressed as follows:
State Street Bank & Trust Company,
Exchange Agent
By Registered or Certified Mail:
State Street Bank and Trust Company
P.O. Box 778
Boston, Massachusetts 02102
Attention: Corporate Trust Department
Kellie Mullen
By Hand or Overnight Courier:
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attention: Corporate Trust Department
Kellie Mullen
By Hand: in Boston
State Street Bank and Trust Company
Two International Plaza
Fourth Floor, Corporate Trust
Boston, Massachusetts 02110
By Hand or Overnight Courier
in New York (as Drop Agent)
State Street Bank and Trust Company, N.A.
61 Broadway
Fifteenth Floor, Corporate Trust Window
New York, New York 10006
Confirm by Telephone:
(617) 664-5587
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
RESALES OF THE NEW NOTES
Based on positions of the Commission set forth in Morgan Stanley & Co.
Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation
(available July 2, 1993) and K-III Communications Corporation (available May 14,
1993), and similar no-action letters issued to third parties, the Company
believes that the New Notes issued pursuant to the Exchange Offer to a holder in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder is not participating, does not
intend to participate and has no arrangement or understanding with any person to
participate in the distribution of such New Notes. The Company has not requested
or obtained, and does not intend to seek, an interpretive letter from the staff
of the Commission with respect to this Exchange Offer, and the Company and the
holders are not entitled to rely on interpretive advice provided by the staff of
the Commission to other persons, which advice was based on the facts and
conditions represented in such letters. Although there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer, the Exchange Offer is being conducted in a manner intended
to be consistent with the facts and conditions represented in such letters. If
any holder acquires New Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the New Notes, such holder
cannot rely on the position of the staff of the Commission set forth in the
above no-action and interpretive letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction, unless an exemption from registration is otherwise
available.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for a period of 180 days
following the consummation of the Exchange Offer, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution" Under the Registration Rights Agreement, the Company is
required to allow such broker-dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such New Notes.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not
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<PAGE> 54
tendered or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other person) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes must accompany the tender of Old Notes.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company. The expenses of the Exchange Offer
and the unamortized expenses related to the issuance of the Old Notes will be
amortized over the term of the New Notes.
REGULATORY APPROVALS
The Company does not believe that the receipt of any material federal or
state regulatory approvals will be necessary in connection with the Exchange
Offer.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
OTHER
Participation in the Exchange Offer is voluntary and holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holder of the Old Notes are urged to consult their financial and tax advisors in
making their own decisions on what action to take with respect to the Exchange
Offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of the Exchange Offer, the
Company will have fulfilled a covenant contained in the terms of the Old Notes
and the Registration Rights Agreement. Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will continue to hold such Old
Notes and will be entitled to all the rights, and limitations applicable
thereto, under the Indenture, except for such rights under the Registration
Rights Agreement (including rights to receive Additional Interest) which by
their terms terminate or cease to have further effect as a result of the making
and consummation of the Exchange Offer. All untendered Old Notes will continue
to be subject to the restrictions on transfer set forth in the Indenture and the
Company does not currently anticipate that it will register the Old Notes under
the Securities Act. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market, if any, for any remaining Old Notes
could be adversely affected. See "Risk Factors -- Consequences of Failure to
Exchange."
DESCRIPTION OF NOTES
GENERAL
The Old Notes were, and the New Notes will be, issued under an Indenture,
dated as of August 13, 1997 (the "Indenture"), among the Company and State
Street Bank and Trust Company, as Trustee (the "Trustee"). The terms of the New
Notes are identical in all material respects to the Old Notes, except that the
New Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting
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<PAGE> 55
their transfer and will not contain certain provisions providing for an increase
in the interest rate thereon under certain circumstances described in the
Registration Rights Agreement, the provisions of which will terminate upon the
consummation of the Exchange Offer. The following summary of certain provisions
of the Indenture and the Notes does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
Indenture (including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended) and the
Notes.
Principal of, premium, if any, and interest on the Notes is payable, and
the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee in New York, New York), except
that, at the option of the Company, payment of interest may be made by check
mailed to the address of the holders as such address appears in the Note
register. Initially, the Trustee will act as Paying Agent and Registrar for the
Notes. The Notes may be presented for registration of transfer and exchange at
the offices of the Registrar, which initially will be the Trustee's corporate
trust office. The Company may change any Paying Agent and Registrar without
notice to holders of the Notes.
The Old Notes were and the New Notes will be issued only in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000. No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
PRINCIPAL, MATURITY AND INTEREST
The Notes are unsecured senior obligations of the Company, limited to $150
million aggregate principal amount, and mature on August 1, 2005. Each Note
bears interest at the rate of 10 3/4% per annum from the date of issuance, or
from the most recent date to which interest has been paid or provided for, and
payable semiannually on February 1 and August 1 of each year commencing on
February 1, 1998 to holders of record at the close of business on the January 15
or July 15 immediately preceding the interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months. The
Notes will not be entitled to the benefit of any mandatory sinking fund.
REDEMPTION
Optional Redemption. Except as set forth below, the Notes will not be
redeemable at the option of the Company prior to August 1, 2001. On and after
such date, the Notes will be redeemable, at the Company's option, in whole or in
part, at any time upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), if redeemed
during the 12-month period commencing on August 1 of the years set forth below,
plus accrued and unpaid interest to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001........................................................ 105.375%
2002........................................................ 102.688%
2003 and thereafter......................................... 100.000%
</TABLE>
Optional Redemption Upon Public Offerings. In addition, at any time on or
prior to August 1, 2000, the Company, at its option, may redeem up to 35% of the
aggregate principal amount of the Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings at a redemption price equal to
110.75% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided, however, that after any
such redemption the aggregate principal amount of the Notes outstanding must
equal at least 65% of the aggregate principal amount of the Notes originally
issued. In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 90
days after the consummation of any such Public Equity Offering.
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<PAGE> 56
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten primary public offering of Qualified Capital Stock of the Company
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which such Notes are
listed, or if such Notes are not then listed on a national securities exchange,
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided, however, that if a
partial redemption is made with the proceeds of a Public Equity Offering,
selection of the Notes or portion thereof for redemption shall be made by the
Trustee only on a pro rata basis, unless such method is otherwise prohibited.
Notes may be redeemed in part in multiples of $1,000 principal amount only.
Notice of redemption will be sent, by first class mail, postage prepaid, at
least 45 days (unless a shorter period is acceptable to the Trustee) prior to
the date fixed for redemption to each holder whose Notes are to be redeemed at
the last address for such holder then shown on the registry books. If any Note
is to be redeemed in part only, the notice of redemption that relates to such
Note shall state the portion of the principal amount thereof to be redeemed. A
new Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the holder thereof upon cancellation of the original Note.
On and after any redemption date, interest will cease to accrue on the Notes or
part thereof called for redemption as long as the Company has deposited with the
Paying Agent funds in satisfaction of the redemption price pursuant to the
Indenture.
RANKING
The Notes represent senior unsecured obligations of the Company ranking
pari passu in right of payment with all other existing and future senior
obligations of the Company. The Notes, however, are effectively subordinated to
secured senior obligations of the Company with respect to the assets securing
such obligations. The Notes also are effectively subordinated to all existing
and future liabilities of the Company's Subsidiaries. As of June 30, 1997, after
giving pro forma effect to the Pro Forma Adjustments, the Offering and the
Refinancings and the application of the proceeds therefrom, the Company's total
indebtedness outstanding would have been approximately $747.9 million, of which
$595.0 million would have been consolidated secured indebtedness, and $370.3
million of which would have been indebtedness of the Company's Subsidiaries.
Subject to certain limitations, the Company and its Subsidiaries may incur
additional indebtedness in the future.
CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes,
in whole or in part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount of such Notes, plus accrued interest, if any, to the date of
purchase (the "Change of Control Purchase Date"), pursuant to the offer
described below (the "Change of Control Offer") and the other procedures set
forth in the Indenture.
Within 30 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
holder of Notes by first-class mail, postage prepaid, at the address of such
holder shown on the security register, stating, among other things, (i) the
purchase price and the purchase date, which shall be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed, or such
later date as is necessary to comply with requirements under the Exchange Act;
(ii) that any Notes not tendered will continue to accrue interest; (iii) that,
unless the Company defaults in the payment of the purchase price, any Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date; and (iv) certain
other procedures that a holder of Notes must follow to accept a Change of
Control Offer or to withdraw such acceptance.
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If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Notes pursuant to a Change of Control Offer,
the Company may seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing. The failure
of the Company to make or consummate the Change of Control Offer or pay the
Change of Control Purchase Price when due would result in an Event of Default
and would give the Trustee and the holders of the Notes the rights described
under "Events of Default."
One of the events which constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test. As a consequence, in
the event holders of the Notes elect to require the Company to purchase the
Notes and the Company elects to contest such election, there can be no assurance
as to how a court interpreting New York law would interpret the phrase.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require the Company to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined as
a Change of Control. See "-- Certain Definitions" for the definition of "Change
of Control." A transaction involving the Company's management or its affiliates,
or a transaction involving a recapitalization of the Company, would only result
in a Change of Control if it is the type of transaction specified by such
definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, in connection with a Change of Control Offer
and shall not be deemed in violation of this covenant by reason of any action
required to be taken to effect such compliance.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. (a) The Company will
not create, issue, assume, guarantee or in any manner become directly or
indirectly liable for the payment of, or otherwise incur (collectively,
"incur"), any Indebtedness (including any Acquired Indebtedness) other than
Permitted Indebtedness unless, at the time of any such incurrence, the
Consolidated Fixed Charge Coverage Ratio would have been at least equal to 2.75
to 1.0 (after giving pro forma effect to (i) the incurrence of such Indebtedness
and (if applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred and the
application of such proceeds occurred on the first day of the period for which
the Consolidated Fixed Charge Coverage Ratio is calculated, (ii) the incurrence,
repayment or retirement of any other Indebtedness by the Company or any
Subsidiary since the first day of such period as if such Indebtedness was
incurred, repaid or retired at the beginning of such period (except that, in
making such computation, the amount of Indebtedness under any revolving credit
facility shall be computed based upon the average daily balance of such
Indebtedness during such period) and (iii) the acquisition (whether by purchase,
merger or otherwise) or disposition (whether by sale, merger or otherwise) of
any company, entity or business acquired or disposed of by the Company or any
Subsidiary or ACMI Contracted Aircraft acquired by the Company or any
Subsidiary, in any such case, since the first day of such period, as if such
acquisition or disposition of a company, entity or business, or such acquisition
of an ACMI Contracted Aircraft acquired by the Company or any Subsidiary, in any
such case, since the first day of such
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<PAGE> 58
period, as if such acquisition or disposition of a company, entity or business,
or such acquisition of an ACMI Contracted Aircraft occurred at the beginning of
such period; provided, however, that pro forma effect shall not be given to a
number of ACMI Contracted Aircraft exceeding five in any four fiscal quarters.
(b) The Company will not permit any Subsidiary to incur any Indebtedness
(including any Acquired Indebtedness) other than Permitted Subsidiary
Indebtedness.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company (other than
dividends or distributions payable solely in shares of its Qualified
Capital Stock or in options, warrants or other rights to acquire such
shares of Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock of the Company or any
Subsidiary or any Affiliate of the Company, or any options, warrants or
other rights to acquire such shares of Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
or
(iv) make any Investment (other than any Permitted Investment) in any
Person
(such payments or any other actions described in (but not excluded from) clauses
(i) through (iv) are collectively referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect on a pro forma basis to, the
proposed Restricted Payment (the amount of any such Restricted Payment, if other
than cash, as determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution), (1) no
Default or Event of Default shall have occurred and be continuing, (2) the
Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in accordance with the provisions described under the
"Limitation on Indebtedness" covenant and (3) the aggregate amount of all
Restricted Payments declared or made after the Issue Date shall not exceed the
sum of:
(A) 50% of the aggregate cumulative Consolidated Adjusted Net
Income of the Company accrued on a cumulative basis during the period
beginning on July 1, 1997 and ending on the last day of the Company's
last fiscal quarter ending prior to the date of such proposed Restricted
Payment (or, if such aggregate cumulative Consolidated Adjusted Net
Income shall be a loss, minus 100% of such amount), plus
(B) 100% of the aggregate Net Cash Proceeds received after the
Issue Date by the Company from the issuance or sale (other than to any
Subsidiary) of shares of Qualified Capital Stock of the Company or
warrants, options or rights to purchase such shares of Qualified Capital
Stock of the Company, plus
(C) 100% of the aggregate Net Cash Proceeds received after the
Issue Date by the Company from the issuance or sale (other than to any
Subsidiary) of debt securities or Redeemable Capital Stock that have
been converted into or exchanged for Qualified Capital Stock of the
Company to the extent such securities were originally sold for cash,
together with the aggregate Net Cash Proceeds received by the Company at
the time of such conversion or exchange, plus
(D) to the extent not otherwise included in the Consolidated
Adjusted Net Income of the Company, an amount equal to the net reduction
in Investments (other than reductions in Permitted Investments) in any
Person resulting from payments in cash of interest on Indebtedness,
dividends, repayments of loans or advances, or other returns of capital,
in each case to the Company or a Subsidiary after the date of the
Indenture from any such Person not to exceed the amount of Investments
(other than Permitted Investments) in such Persons by the Company and
its Subsidiaries, plus
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(E) $10 million, plus
(F) without duplication, the sum of (1) the aggregate amount
returned in cash on or with respect to Investments (other than Permitted
Investments) made subsequent to the Issue Date whether through interest
payments, principal payments, dividends or other distributions or
payments, (2) the net cash proceeds received by the Company or any
Subsidiary from the disposition of all or any portion of such
Investments (other than to a Subsidiary of the Company) and (3) upon
redesignation of an Unrestricted Subsidiary as a Subsidiary, the fair
market value of such Subsidiary; provided, however, that with respect to
all Investments made in any Unrestricted Subsidiary or joint venture,
the sum of clauses (1), (2) and (3) above with respect to such
Investment shall not exceed the aggregate amount of all such Investments
made subsequent to the Issue Date in such Unrestricted Subsidiary or
joint venture.
(b) Notwithstanding paragraph (a) above, the Company and any Subsidiary may
take the following actions so long as (with respect to clauses (ii),
(iii), (iv), (v), (vi) and (vii), below) no Default or Event of Default
shall have occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration the payment of such
dividend would have complied with the provisions of paragraph (a) above and
such payment shall be deemed to have been paid on such date of declaration
for purposes of the calculation required by paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company or any warrants, rights
or options to acquire shares of Capital Stock, in exchange for, or out of
the Net Cash Proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, shares of Qualified Capital Stock of the
Company;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness or Redeemable Capital
Stock in exchange for, or out of the Net Cash Proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) of, shares of
Qualified Capital Stock of the Company;
(iv) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness of the Company in
exchange for, or out of the Net Cash Proceeds of a substantially concurrent
incurrence or sale (other than to a Subsidiary) of, new Subordinated
Indebtedness of the Company so long as (A) the principal amount of such new
Indebtedness does not exceed the principal amount (or, if such Subordinated
Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
of the Subordinated Indebtedness being so purchased, redeemed, defeased,
acquired or retired, (B) such new Subordinated Indebtedness is subordinated
to the Notes to the same extent as such Subordinated Indebtedness so
purchased, redeemed, defeased, acquired or retired and (C) such new
Subordinated Indebtedness does not have a scheduled principal payment
earlier than the final maturity of the Notes;
(v) the purchase, redemption or other acquisition or retirement for
value of shares of Capital Stock of the Company held by any future, present
or former employee or director of the Company or any Subsidiary issued
pursuant to any management equity or stock option plan of the Company;
provided that the aggregate consideration paid by the Company for such
shares so purchased, redeemed or otherwise acquired or retired for value
does not exceed $2.5 million in any fiscal year of the Company;
(vi) the making of any Investment (other than a Permitted Investment)
out of the Net Cash Proceeds of the substantially concurrent issuance and
sale (other than to a Subsidiary) of Qualified Capital Stock of the
Company; and
(vii) the making of Investments in an aggregate amount not to exceed
$50,000,000 in wholly-owned Unrestricted Subsidiaries to own and lease ACMI
Contracted Aircraft or other flight equipment utilized in the normal course
of business of the Company.
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The actions described in clauses (i), (ii), (iii), (v) and (vi) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph (a)
and the actions described in clause (iv) and (vii) of this paragraph (b) shall
be Restricted Payments that shall be permitted to be taken in accordance with
this paragraph and shall not reduce the amount that would otherwise be available
for Restricted Payments under clause (3) of paragraph (a) above.
(c) In computing Consolidated Adjusted Net Income of the Company under
paragraph (a) above, (1) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (2) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment would in the good faith determination of
the Company be permitted under the requirements of the Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Adjusted Net Income of the
Company for any period.
Limitation on Issuances and Sales of Capital Stock of Subsidiaries. The
Company (a) will not permit any Subsidiary to issue any Capital Stock (other
than to the Company or a Subsidiary) and (b) will not permit any Person (other
than the Company or a Subsidiary) to own any Capital Stock of any Subsidiary;
provided, however, that this covenant shall not prohibit (i) the issuance and
sale of all, but not less than all, of the issued and outstanding Capital Stock
of any Subsidiary owned by the Company or any Subsidiary in compliance with the
other provisions of the Indenture or (ii) the ownership by directors of
director's qualifying shares or the ownership by foreign nationals of Capital
Stock of any Subsidiary, to the extent mandated by applicable law.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, enter into or suffer to
exist any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of the Company or any
Subsidiary unless (i) such transaction or series of related transactions is
between and among the Company and wholly owned Subsidiaries or (ii) (A) such
transaction or series of related transactions is on terms that are no less
favorable to the Company, or such Subsidiary, as the case may be, than those
that could have been obtained in an arm's-length transaction with unrelated
third parties; (B) the Company shall have delivered an officer's certificate to
the Trustee certifying that such transaction or series of related transactions
complies with clause (A); (C) if such transaction or series of related
transactions involves consideration of more than $3 million the Board of
Directors (including a majority of the Disinterested Directors) has approved
such transaction or series of transactions or the Company has obtained a written
opinion from a nationally recognized investment banking firm to the effect set
forth in the preceding clause (A); and (D) if such transaction or series of
related transactions involves consideration of more than $10 million the Company
has obtained a written opinion from a nationally recognized investment banking
firm to the effect set forth in the preceding clause (A). This covenant will not
apply to (i) the payment of reasonable and customary compensation and fees to,
and indemnification of, directors of the Company or any Subsidiary who are not
employees of the Company or any Subsidiary or (ii) reasonable and customary
salaries, bonuses and other compensation paid to employees of the Company or any
Subsidiary in accordance with past practice approved by the Compensation
Committee of the Company. Clauses (ii) (C) and (ii) (D) of this covenant will
not apply to transactions pursuant to the Atlas Freighter Leasing Transactions.
Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien of any kind (other then Permitted Liens) on or with respect to any of
its property or assets including any shares of stock or indebtedness of any
Subsidiary, whether owned at the date of the Indenture or thereafter acquired,
or any income, profits or proceeds therefrom, or assign or otherwise convey any
right to receive income thereon.
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Limitation on Asset Sales and Disposition of Proceeds of Asset Sales. (a)
The Company will not, and will not permit any Subsidiary to, directly or
indirectly engage in any Asset Sale involving assets unless (i) the
consideration received by the Company or such Subsidiary for such Asset Sale is
not less than the Fair Market Value of the assets sold (as determined by the
Board of Directors of the Company, whose determination shall be conclusive and
evidenced by a Board Resolution) and (ii) the consideration received by the
Company or the relevant Subsidiary in respect of such Asset Sale consists of at
least 75% cash or Cash Equivalents.
(b) If the Company or any Subsidiary engages in an Asset Sale, the Company
may use the Net Cash Proceeds thereof, within 12 months after such Asset Sale,
to (i) repay permanently any then outstanding senior Indebtedness of the Company
or Indebtedness of any Subsidiary, (ii) invest (or enter into a legally binding
agreement to invest) in properties and assets to replace the properties and
assets that were the subject of the Asset Sale or in properties and assets that
will be used in businesses of the Company or its Subsidiaries. as the case may
be, existing on the Issue Date or reasonably related thereto or involving
outsourcing for the air cargo industry ("Replacement Assets"), or (iii) a
combination of repayment and investment permitted by the foregoing clauses (b)
(i) and (b) (ii). If any such legally binding agreement to invest such Net Cash
Proceeds is terminated, then the Company may, within 90 days of such termination
or within 12 months of such Asset Sale, whichever is later, invest such Net Cash
Proceeds as provided in clauses (i), (ii) (without regard to the parenthetical
contained in such clause (ii)) or (iii) above. Pending the final application of
any such Net Cash Proceeds, the Company or such Subsidiary may temporarily
reduce Indebtedness under a revolving credit facility, if any, or otherwise
invest such Net Cash Proceeds in Cash Equivalents. The amount of such Net Cash
Proceeds not so used as set forth above in this paragraph (b) constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company shall, within 25 business days, make an offer to purchase (an "Excess
Proceeds Offer") from the holders of Notes, on a pro rata basis, in accordance
with the procedures set forth below the maximum principal amount of Notes that
may be purchased with the Excess Proceeds. The offer price as to each Note shall
be payable in cash in an amount equal to 100% of the principal amount of such
Note (as adjusted for any prepayment of principal of the Notes), plus accrued
interest, if any (the "Offered Price"), to the date such Excess Proceeds Offer
is consummated. To the extent that the adjusted aggregate principal amount of
Notes tendered pursuant to an Excess Proceeds Offer is less than the Excess
Proceeds, the Company may use such deficiency for general corporate purposes. If
the aggregate principal amount of Notes validly tendered and not withdrawn by
holders thereof exceeds the Excess Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset to zero.
(d) Notwithstanding the foregoing, the Company and its Subsidiaries will be
permitted to consummate an Asset Sale without complying with paragraphs (a) and
(b) above to the extent (i) at least 75% of the consideration for such Asset
Sale constitutes Replacement Assets and/or Cash Equivalents and (ii) such Asset
Sale is for Fair Market Value; provided, however, that any consideration not
constituting Replacement Assets received by the Company or any Subsidiary in
connection with any Asset Sale permitted to be consummated under this paragraph
shall constitute Net Cash Proceeds subject to the provisions of paragraphs (a)
and (b) above.
(e) If the Company becomes obligated to make an Offer pursuant to clause
(c) above, the Notes shall be purchased by the Company, at the option of the
holder thereof, in whole or in part in integral multiples of $1,000, on a date
that is not earlier than 30 days and not later than 60 days from the date the
notice is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act, subject to
proration in the event the amount Excess Proceeds is less than the aggregate
Offered Price of all Notes tendered.
(f) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, in connection with an Excess
Proceeds Offer and shall not be deemed in violation of this covenant by reason
of any action required to be taken to effect such compliance.
Limitation on Guarantees of Indebtedness by Subsidiaries. (a) The Company
will not permit any Subsidiary, directly or indirectly, to guarantee, assume or
in any other manner become liable for the payment of any Indebtedness of the
Company or Indebtedness of any other Subsidiary unless (i) (A) such Subsidiary
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simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee of payment of the Notes by such Subsidiary and (B)
with respect to any guarantee of Subordinated Indebtedness by a Subsidiary, any
such guarantee shall be subordinated to such Subsidiary's Guarantee with respect
to the Notes at least to the same extent as such Subordinated Indebtedness is
subordinated to the Notes and (ii) such Subsidiary waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary as a result of any payment by such Subsidiary under its
Guarantee.
(b) Notwithstanding the foregoing, any Guarantee by a Subsidiary of the
Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Capital Stock of a
Subsidiary owned by the Company or any Subsidiary in, or all or substantially
all the assets of, such Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the guarantee
which resulted in the creation of such Guarantee (and any other guarantees that
would have resulted in the creation of such a Guarantee), except a discharge or
release by or as a result of payment under such guarantee.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction of any kind on the ability of any
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, (b) pay any Indebtedness
owed to the Company or any other Subsidiary, (c) make Investments in the Company
or any other Subsidiary, (d) transfer any of its properties or assets to the
Company or any other Subsidiary or (e) guarantee any Indebtedness of the Company
or any other Subsidiary, except for such encumbrances or restrictions existing
under or by reason of (i) any agreement in effect on the date of the Indenture,
(ii) the Indenture, (iii) applicable law, (iv) customary non-assignment
provisions, (x) of any lease governing a leasehold interest of the Company or
any Subsidiary or (y) of Indebtedness secured by a Lien that is permitted to be
incurred under the Indebtedness that relates to the property subject to such
Lien, (v) any agreement or other instrument of a Person acquired by the Company
or any Subsidiary in existence at the time of such acquisition (but not created
in contemplation thereof), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, (vi) any restriction with
respect to a Subsidiary of the Company imposed pursuant to an agreement relating
to the sale of all or substantially all of the Capital Stock or assets of such
Subsidiary (so long as such restriction, by its terms, terminates on the earlier
of the termination of such agreement or the consummation of such agreement), and
(vii) any restrictions existing under any agreement that refinances or replaces
any agreement containing restrictions permitted under clause (i), (ii), (iv),
(v) or (vi), provided that the terms and conditions of such restriction are not
materially less favorable to the holder of the Notes than those under or
pursuant to the agreement refinanced or replaced.
Limitations on Consolidations, Mergers and Sales of Assets. The Company
will not in a single transaction or a series of related transactions consolidate
with or merge with or into any other Person or sell, assign, convey, transfer,
lease or otherwise dispose of all or substantially all of its properties and
assets as an entirety to any Person or Persons, and the Company will not permit
any Subsidiary to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in
the sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis to any Person or Persons, unless: (i)
either (a) the Company shall be the surviving corporation or (b) the Person (if
other than the Company) formed by such consolidation or into which the Company
or such Subsidiary is merged or the Person which acquires by sale, assignment,
conveyance, transfer, lease or other disposition all or substantially all of the
properties and assets of the Company or such Subsidiary, as the case may be (the
"Surviving Entity"), (1) shall be a corporation organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia that is a "certificated United States air carrier" under
the Aviation Act and (2) shall expressly assume, by indenture, supplemental to
the Indenture, executed and delivered to the Trustee, in form satisfactory to
the Trustee, the Company's obligation for the due and punctual payment of the
principal of (or premium, if any, on) and interest on the Notes and the
performance
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and observance of every covenant of the Indenture on the part of the Company to
be performed or observed; (ii) immediately before and after giving effect to
such transaction or series of transactions on a pro forma basis and treating any
obligation of the Company or a Subsidiary in connection with or as a result of
such transaction as having been incurred at the time of such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately before and immediately after giving effect to such transaction or
series of transactions on a pro forma basis (on the assumption that the
transaction or series of transactions occurred on the first day of the
four-quarter period immediately prior to the consummation of such transaction or
series of transactions with the appropriate adjustments with respect to the
transaction or series of transactions being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the provisions of the
"Limitation on Indebtedness" covenant; (iv) each Guarantor, if any, unless it is
the other party to the transactions described above, shall have by supplemental
indenture confirmed that its Guarantee shall apply to such Person's obligations
under the Indenture and the Notes; (v) if any of the property or assets of the
Company or any of its Subsidiaries would thereupon become subject to any Lien,
the provisions of the "Limitation on Liens" covenant are complied with; and (vi)
the Company or the Surviving Entity shall have delivered to the Trustee, in form
and substance reasonably satisfactory to the Trustee, an officer's certificate
and an opinion of counsel, each stating that such consolidation, merger,
conveyance, transfer or lease, and if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, comply with the
terms of the Indenture and that all conditions precedent therein provided for
relating to such transaction have been complied with.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company in accordance with the immediately preceding paragraph in
which the Company is not the continuing obligor under the Indenture, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor had been named as the Company therein. When a successor
assumes all the obligations of its predecessor under the Indenture or the Notes,
the predecessor shall be released from those obligations; provided that in the
case of a transfer by lease, the predecessor shall not be released from the
payment of principal and interest on the Notes.
Reports. The Company will file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company will also be required (a) to file with the Trustee, and provide to each
holder of Notes, without cost to such holder, copies of such reports and
documents within 15 days after the date on which the Company files such reports
and documents with the Commission or the date on which the Company would be
required to file such reports and documents if the Company were so required, and
(b) if filing such reports and documents with the Commission is not accepted by
the Commission or is prohibited under the Exchange Act, to supply at the
Company's cost copies of such reports and documents to any prospective holder of
Notes promptly upon written request.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on the
Notes when it becomes due and payable, and continuance of such default for
a period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) the Notes at their Maturity;
(iii) (A) there shall be a default in the performance, or breach, of
any covenant or agreement of the Company contained in the Indenture (other
than a default in the performance, or breach, of a covenant or agreement
which is specifically dealt with in the immediately preceding clauses (i)
or (ii), or in clauses (B), (C) and (D) of this clause (iii)) and
continuance of such default or breach for a period of 30 days after written
notice shall have been given to the Company by the Trustee or to the
Company and
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the Trustee by the holders of at least 25% in aggregate principal amount of
the Notes then outstanding; (B) there shall be a default in the
performance, or breach, of the provisions of "-- Certain Covenants --
Limitation on Asset Sales and Disposition of Proceeds of Asset Sales"; (C)
there shall be a default in the performance or breach of the provisions of
"Consolidation, Merger and Sale of Assets"; or (D) the Company shall have
failed to make or consummate a Change of Control Offer in accordance with
the provisions of "-- Certain Covenants -- Change of Control";
(iv) (A) there shall have occurred one or more defaults in the payment
of principal of (or premium, if any, on) Indebtedness of the Company or any
Subsidiary aggregating $10 million or more, when the same becomes due and
payable at the stated maturity thereof, and such default or defaults shall
have continued after any applicable grace period and shall not have been
cured or waived or (B) Indebtedness of the Company or any Subsidiary
aggregating $10 million or more shall have been accelerated or otherwise
declared due and payable, or required to be prepaid or repurchased (other
than by regularly scheduled required prepayment), prior to the stated
maturity thereof;
(v) one or more final judgments or orders rendered against the Company
or any Subsidiary which require the payment of money, either individually
or in an aggregate amount, in excess of $10 million and either (A) an
enforcement proceeding shall have been commenced by any creditor upon such
judgment or order or (B) there shall have been a period of 30 days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, was not in effect; or
(vi) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company may declare the principal of and accrued and unpaid interest, if any, on
all the Notes to be due and payable. Upon such a declaration, such principal and
accrued and unpaid interest shall be due and payable immediately, if an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs and is continuing, the principal of and accrued and unpaid
interest on all the Notes will become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders. Under
certain circumstances, the holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
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The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 5 days after it occurs. Except in the case of a Default in the payment of
principal of, premium (if any) or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its Trust officers in good faith
determines that withholding notice is in the interests of the Noteholders. In
addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 5 days after the occurrence
thereof, written notice of any events which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, or stockholder of the Company or any
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Subsidiary under the Notes or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes.
DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at its option by Board Resolution, at any time, terminate
the obligations of the Company with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, except for (i) the rights of holders of outstanding Notes to receive
payments in respect of the principal of (and premium, if any, on) and interest
on such Notes when such payments are due, (ii) the Company's obligations to
issue temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes, maintain an office or agency for
payments in respect of the Notes and segregate and hold such payments in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv)
the defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company with
respect to certain covenants set forth in the Indenture under "-- Certain
Covenants" above ("covenant defeasance"), and any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the Notes, money in an amount, or U.S. Government
Obligations (as defined in the Indenture) which through the scheduled payment of
principal and interest thereon will provide money in an amount, or a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of (and
premium, if any, on) and interest on the outstanding Notes at maturity (or upon
redemption, if applicable) of such principal, premium or installment of
interest; (ii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as an event of bankruptcy
under clause (vi) of "Events of Default" above is concerned, at any time during
the period ending on the 91st day after the date of such deposit; (iii) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, the Indenture or any material agreement or
instrument to which the Company is a party or by which it is bound; (iv) in the
case of defeasance, the Company shall have delivered to the Trustee an Opinion
of Counsel stating that the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or since the date hereof,
there has been a change in applicable federal income tax law, in either case to
the effect, and based thereon such opinion shall confirm that, the holders of
the outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred; (v) in the case of
covenant defeasance, the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that the holders of the Notes outstanding will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject
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to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not occurred;
(vi) in the case of defeasance or covenant defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States to the
effect that after the 91st day following the deposit or after the date such
opinion is delivered, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of the Notes over the other
creditors of the Company with the intent of hindering, delaying or defrauding
creditors of the Company; and (viii) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.
MODIFICATION OF INDENTURE
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose holders must consent to an amendment, (ii) reduce the stated rate of
or extend the stated time for payment of interest on any Note, (iii) reduce the
principal of or extend the Maturity of any Note, (iv) waive a default in the
payment of the principal of or interest on any Note, (v) reduce the premium
payable upon the redemption or repurchase of any Note or change the time at
which any Note may be redeemed as described under "Optional Redemption" above,
(vi) make any Note payable in money other than that stated in the Note, (vii)
impair the right of any holder to receive payment of principal of and interest
on such holder's Notes on or after the due dates therefor or to institute suit
for the enforcement of any payment on or with respect to such holder's Notes,
(viii) amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate an offer with respect to any Asset Sale
that has been consummated or modify any of the provisions or definitions with
respect thereto, (ix) modify or change any provision of the Indenture or the
related definitions affecting the ranking of the Notes in a manner which
adversely affects the Holders or (x) make any change in the amendment provisions
which require each holder's consent or in the waiver provisions.
Without the consent of any holder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation, partnership, trust or
limited liability company of the obligations of the Company under the Indenture,
to provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form for
purposes of Section 163 (f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163 (f) (2) (B) of the Code), to
secure the Notes, to add to the covenants of the Company for the benefit of the
holders or to surrender any right or power conferred upon the Company, to make
any change that does not adversely affect the rights of any holder or to comply
with any requirement of the Commission in connection with the qualification of
the Indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders or any defect
therein, will not impair or affect the validity of the amendment.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
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The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim a security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined) it
must eliminate such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes issued under the Indenture will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured) the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of the Notes issued thereunder, unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"ACMI Contracted Aircraft" means an aircraft acquired by the Company or its
Subsidiaries and dedicated to a new ACMI Contract entered into within 60 days of
the acquisition of such aircraft (which ACMI Contract shall not represent a
renewal or replacement of a prior ACMI Contract unless the aircraft dedicated to
such prior ACMI Contract was operated under an operating lease and returned to
the lessor) which is in effect on the date of calculation and has a remaining
term of three years or more on the date such aircraft was dedicated to such ACMI
Contract provided that in any calendar year two ACMI Contracts may have a term
of not less than one year (subject to cancellation terms, which may include the
right to cancel on no less than six months notice). Pro forma effect shall be
given to the acquisition of an ACMI Contracted Aircraft by adding to the
appropriate components of the Consolidated Fixed Charge Coverage Ratio (i) the
net projected annualized revenues from the operation of the ACMI Contracted
Aircraft under such ACMI Contract for that portion of the period for which the
Consolidated Fixed Charge Coverage Ratio is being calculated prior to the
acquisition of such aircraft, assuming operation for the minimum guaranteed
number of block hours (less any block hours subject to cancellation) at the
minimum guaranteed rate under such ACMI Contract less (ii) the projected
annualized cash operating expenses from such operation for the same period for
which the related projected revenues are determined in clause (i) above,
provided that such projected cash operating expenses shall not be less on a per
block hour basis than the average historical per block hour cash operating
expenses of the Company for such aircraft model for the four full fiscal
quarters immediately preceding the date of calculation, and provided, further,
that if such aircraft is of a model not then currently operated by the Company,
such projected cash operating expenses shall include maintenance costs which
shall not be less than the average for such aircraft type disclosed on the most
recently available DOT Forms 41 with respect to such aircraft type or any
summary of such data as reported in a nationally recognized industry publication
or as provided in a written estimate prepared by a nationally recognized air
transportation consulting group. For purposes of this definition, "ACMI
Contract" shall include contracts pursuant to which the Company does not pay any
crew costs, in which event pro forma effect shall be given as described above
but excluding from the projected annualized cash operating expenses all crew
costs. Cash operating expenses means for purposes of this definition
consolidated operating expenses, less consolidated depreciation and amortization
and consolidated rental expenses, to the extent included in computing
consolidated operating expenses.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Subsidiary or (b) assumed in connection with the
acquisition of assets from such Person.
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"AFL II" means a new wholly-owned Unrestricted Subsidiary to be formed for
the sole purpose of owning and leasing four 747-200 aircraft and eight spare
engines currently owned by the Company and financed by the Company's existing
revolving credit facility.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any executive officer or director of any such specified Person or other
Persons or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Appraised Fair Market Value" means the Adjusted Current Market Value.
Current Market Value is the most likely trading price that, in the opinion of an
appraiser, may be generated from an aircraft under the market conditions that
are perceived to exist at the time in question. Current Market Value assumes
that the aircraft is valued for its highest, best use, that the parties to the
hypothetical transaction are willing, able, prudent and knowledgeable, and under
no unusual pressure for a prompt sale, and that the transaction would be
negotiated in an open and unrestricted market on an arm's length basis, for cash
or equivalent consideration, and given an adequate amount of time for effective
exposure to prospective buyers. Adjusted Current Market Value, in the opinion of
the appraiser, is the Current Market Value of the aircraft adjusted for the
actual technical status and maintenance condition of the aircraft.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way or merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Subsidiary; (ii) all or substantially all of the properties and assets of
the Company or its Subsidiaries; or (iii) any other properties or assets of the
Company or any Subsidiary, other than in the ordinary course of business. For
the purposes of this definition, the term "Asset Sale" shall not include any
transfer of properties or assets (A) that is governed by the provisions of the
Indenture, described under "Consolidation, Merger and Sale of Assets," (B) by
the Company to any Subsidiary, or by any Subsidiary of the Company or any
Subsidiary and in accordance with the terms of the Indenture, (C) of aircraft
engines, components, parts or spare parts pursuant to customary pooling,
exchange or similar agreements or, (D) asset swaps involving aircraft engines,
components, parts or spare parts (provided that the assets received by the
Company or any Subsidiary have a Fair Market Value at least equal to the asset
transferred (provided that with respect to any asset swap or series of related
asset swaps involving assets with a Fair Market Value exceeding $3 million, such
determination shall be made by the Board of Directors)), (E) constituting an
Investment that is permitted under the Indenture in an Unrestricted Subsidiary,
joint venture or other Person in which the Company or a Subsidiary retains an
ownership interest, or (F) having a Fair Market Value per transaction or series
of related transactions of less than $1,000,000.
"Atlas Freighter Leasing Transactions" means the transactions in which
Atlas Freighter Leasing, Inc. and AFL II, each a wholly-owned Unrestricted
Subsidiary of the Company, refinanced and will refinance six 747-200 aircraft
and four 747-200 aircraft all previously owned by the Company, respectively.
"Aviation Act" means the Federal Aviation Act of 1958, as amended, and the
applicable regulations thereunder.
"Bankruptcy Law" means Title 11, United States Code, as amended, or any
similar United States federal or state law relating to bankruptcy, insolvency,
receivership, winding-up, liquidation, reorganization or relief of debtors or
any amendment to, succession to or change in any such law.
"Boeing Purchase Contract" means the agreement dated June 9, 1997 between
Atlas Air, Inc. and The Boeing Company to purchase ten new 747-400 aircraft.
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"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of the Indenture.
"Capitalized Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under a lease of (or other
agreement conveying the right to sue) any property (whether real, personal or
mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of one year or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) certificates of deposit or acceptances and money market deposits
with a maturity of one year or less of any financial institution that is a
member of the Federal Reserve System, in each case having combined capital and
surplus and undivided profits of not less than $500,000,000; (iii) commercial
paper with a maturity of one year or less issued by a corporation that is not an
Affiliate of the Company and is organized under the laws of any state of the
United States or the District of Columbia and rated at least A-1 by S&P or at
least P-1 by Moody's and (iv) investment in money market funds substantially all
of whose assets are comprised of Cash Equivalents described in clauses (i)
through (iii).
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 40% of the total outstanding Voting Stock of the
Company; (b) the Company consolidates with, or merges with or into, another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (B) cash, securities and other property
(other than Capital Stock of the Surviving Entity) in an amount that could be
paid by the Company as a Restricted Payment as described under the "-- Certain
Covenants -- Limitation on Restricted Payments" covenant (or a combination of
(A) and (B)) and (ii) immediately after such transaction, no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other
than Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 40% of the total outstanding
Voting Stock of the surviving transferee corporation; (c) during any consecutive
two year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election to such Board of Directors, or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; or (d) the Company is liquidated or dissolved or adopts a plan
of liquidation or dissolution other than in a transaction which complies with
the provisions described under "Consolidation, Merger and Sale of Assets." For
purposes of this definition, a Permitted Holder shall be deemed to beneficially
own Voting Stock that has been pledged to a financial
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institution, unless the pledgee has the present right to vote such Voting Stock
in the election of directors or has exercised remedies with respect to such
Voting Stock.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and all Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding, without duplication,
(a) any net after-tax extraordinary gains or losses (less all fees and expenses
relating thereto), (b) any net after-tax gains or losses (less, all fees and
expenses relating thereto) attributable to asset dispositions other than in the
ordinary course of business, (c) the portion of net income (or loss) of any
Person (other than the Company or a Subsidiary), including Unrestricted
Subsidiaries, in which the Company or any Subsidiary has an ownership interest,
except to the extent of the amount of dividends or other distributions actually
paid to the Company or any Subsidiary in cash during such period, (d) for
purposes of calculating Consolidated Adjusted Net Income under the "Limitation
on Restricted Payments" covenant, the net income (or loss) of any Person
combined with the Company or any Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination and (e) the net
income of any Subsidiary, to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the date of
determination permitted, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Subsidiary or its stockholders.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio of (a) the sum of Consolidated Adjusted Net Income,
Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated
Non-Cash Charges deducted in computing Consolidated Adjusted Net Income, in each
case, for such period, of the Company and all Subsidiaries as determined on a
consolidated basis in accordance with GAAP to (b) such Consolidated Interest
Expense.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and all
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" of the Company means, for any period,
without duplication, the sum of (a) the interest expense of the Company and its
Subsidiaries for such period, including, without limitation, (i) amortization of
debt discount, (ii) the net cost of interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, (iv) amortization of debt costs and (v) accrued interest and
capitalized interest, plus (b) the interest component of Capitalized Lease
Obligations of the Company and its Subsidiaries during such period, plus (c)
cash dividends due (whether or not declared) on the Redeemable Capital Stock by
the Company and any Subsidiary (to any Person other than the Company and any
wholly owned Subsidiary), in each case as determined on a consolidated basis in
accordance with GAAP; provided that (x) the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma basis and
(A) bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire period
and (B) which was not outstanding during the period for which the computation is
being made but which bears, at the option of the Company, a fixed or floating
rate of interest, shall be computed by applying at the option of the Company,
either the fixed or floating rate, and (y) in making such computation, the
Consolidated Interest Expense attributable to interest on any Indebtedness under
a revolving credit facility computed on a pro forma basis shall be computed
based upon the average daily balance of such Indebtedness during the applicable
period. For purposes of clause (c) of the preceding sentence, dividends shall be
deemed to be an amount equal to the dividends due (whether or not declared)
divided by one minus the applicable actual combined federal, state, provincial,
local and foreign income tax rate of the Company and its Subsidiaries (expressed
as a decimal).
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash items of the Company and any
Subsidiary reducing Consolidated Adjusted Net Income for such period, determined
on a consolidated basis in accordance with GAAP (excluding any such non-cash
charge which represents an accrual of or reserve for cash charges for any future
period).
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of
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its Subsidiaries in the ordinary course of business and designed to protect
against or manage exposure to fluctuations in foreign currency exchange rates.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the date of the Indenture.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent, or
otherwise. the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantee" means any guarantee of the Notes by any Subsidiary, in
accordance with the provisions of "Certain Covenants -- Limitation on Guarantees
of Indebtedness by Subsidiaries." When used as a verb, "Guarantee" shall have a
corresponding meaning.
"Guarantor" means any Person that incurs a Guarantee.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money (including overdrafts) or for
the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities (including outstanding
disbursements owed to trade creditors) incurred in the ordinary course of
business (whether or not evidenced by a note), but including, without
limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit and acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities, (b) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness of such Person created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even if the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) all Indebtedness referred to in (but not
excluded from) the preceding clauses of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees by such
Person of Indebtedness referred to in this definition of any other Person, (g)
all Redeemable Capital Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends and (h) all obligations of such Person under or in respect of Interest
Rate Agreements or Currency Agreements. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be
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determined pursuant to the Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair
Market Value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates in respect of Indebtedness.
"Investment" means, with respect to any Person, any direct or indirect
advance, loss or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued or owned by, any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP. In addition, the Fair Market Value of the net
assets of any Subsidiary at the time that such Subsidiary is designated an
Unrestricted Subsidiary shall be deemed to be an "Investment" made by the
Company in such Unrestricted Subsidiary at such time. "Investment" shall exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claims, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale, agreement, capital lease or other title retention
agreement.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal, by sinking fund payment or
by declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations, but only when received in the form of, or stock or
other assets when disposed for, cash or Cash Equivalents (except to the extent
that such obligations are financed or sold with recourse to the Company or any
Subsidiary), net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of legal counsel and investment banks) related to
such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset
Sale, (iii) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of such Asset
Sale, (iv) amounts required to be paid to any Person (other than the Company or
any Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by the
Company or any Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Indenture Trustee and (b) with respect
to any issuance or sale of Capital Stock or options, warrants or rights to
purchase Capital Stock, or debt securities or Redeemable Capital Stock that have
been converted into or exchanged for Qualified Capital Stock, as referred to
under "Certain Covenants -- Limitation on Restricted Payments," the proceeds of
such issuance or sale in the form of cash or Cash Equivalents, including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed for, cash or Cash Equivalents (except
to the extent that such obligations are financed or sold with recourse to the
Company or any Subsidiary of the Company), net of attorney's fees, accountant's
fees and brokerage,
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consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Permitted Holders" means Michael A. Chowdry, the Related Parties and/or a
trustee or other fiduciary holding Voting Stock under an employee benefit plan
of the Company.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company in an aggregate principal amount at
any one time outstanding not to exceed $100 million provided that such
Indebtedness is incurred to finance the acquisition of additional aircraft
by the Company and is secured by Liens on such aircraft;
(b) Indebtedness of the Company outstanding on the Issue Date;
(c) Indebtedness of the Company to any wholly owned Subsidiary;
provided that any Indebtedness of the Company owing to any such Subsidiary
is made pursuant to an intercompany note and is subordinated in right of
payment from and after such time as the Notes shall become due and payable
(whether at Stated Maturity, upon acceleration or otherwise) to the payment
and performance of the Company's obligations under the Notes; provided
further, that any disposition, pledge or transfer of any such Indebtedness
to a Person (other than the Company or another wholly owned Subsidiary)
shall be deemed to be an incurrence of such Indebtedness by the Company not
permitted by this clause (c);
(d) Indebtedness of the Company under Currency Agreements and Interest
Rate Agreements entered into in the ordinary course of business, provided
that the notional amount of such obligations does not exceed the amount of
the related obligation on Indebtedness outstanding or committed to be
incurred on the date such Currency Agreement or Interest Rate Agreements
are entered into;
(e) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company of any Indebtedness of the Company pursuant to clause (b) of this
definition, including any successive refinancings by the Company, so long
as (i) any such new Indebtedness shall be in a principal amount that does
not exceed the principal amount (or, if such Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as
of the date of determination) so refinanced, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of the Indebtedness refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing, plus the amount of expenses of the Company incurred in
connection with such refinancing, (ii) in the case of any refinancing of
Subordinated Indebtedness, such new Indebtedness is made subordinate to the
Notes at least to the same extent as the Indebtedness being refinanced and
(iii) such new Indebtedness has no scheduled payment dates prior to the
final Stated Maturity of the Notes;
(f) Indebtedness of the Company in addition to any amounts listed in
clauses (a) through (e) above in an aggregate principal amount at any one
time outstanding not to exceed $20 million less the amount of Permitted
Subsidiary Indebtedness then outstanding pursuant to clause (f) of the
definition hereof;
(g) Indebtedness under the Notes and the Indenture;
(h) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence; and
(i) Indebtedness of the Company and its Restricted Subsidiaries
incurred in connection with the acquisition of ten new Boeing 747-400
aircraft pursuant to the Boeing Purchase Contract provided that
Indebtedness shall not exceed 80% of Appraised Fair Market Value of such
aircraft at the time of borrowing, neither individually nor in the
aggregate.
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"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any wholly owned Subsidiary;
(c) Investments in Subsidiaries and Unrestricted Subsidiaries in an
amount not to exceed $20 million in aggregate which Subsidiaries or
Unrestricted Subsidiaries are in the business of the Company as conducted
on the Issue Date or, a business reasonably related thereto or involved in
outsourcing for the air cargo industry or the leasing of aircraft to the
Company;
(d) Investments by the Company or any Subsidiary in another Person, if
as a result of such Investment (i) such other Person becomes a wholly owned
Subsidiary or (ii) such other Person is merged or consolidated with or
into, or transfers or conveys all or substantially all of its assets to,
the Company or a wholly owned Subsidiary;
(e) Currency Agreements and Interest Rate Agreements;
(f) Loans and advances to employees and officers of the Company and
its Subsidiaries in the ordinary course of business not in excess of $2.0
million at any one time outstanding;
(g) Investments in securities of trade creditors or customers received
pursuant to a plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(h) Investments existing on the Issue Date; or
(i) Investments by the Company in AFL II.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date of the Indenture;
(b) Liens on any property or assets of a wholly owned Subsidiary
granted in favor of the Company or any other wholly owned Subsidiary;
(c) Liens on property acquired after the date of the Indenture that
secures Indebtedness permitted to be incurred under the covenant described
under "Limitation on Indebtedness" and provided further that such Liens
shall not extend to any other property of the Company or its Subsidiaries;
(d) statutory Liens of landlords and carrier's, warehouseman's,
mechanics, supplier's, materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceeding,
if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(e) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(f) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money);
(g) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business
of the Company or any Subsidiary incurred in the ordinary course of
business;
(h) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review
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<PAGE> 75
of such judgment, decree or order shall not have been finally terminated or
the period within which such proceedings may be initiated shall not have
expired; and
(i) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (i); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets.
"Permitted Subsidiary Indebtedness" means any of the following:
(a) Indebtedness of Subsidiaries outstanding on the Issue Date;
(b) Indebtedness of any Subsidiary under Currency Agreements and
Interest Rate Agreements, provided that the notional principal amount of
such obligations does not exceed the amount of Indebtedness outstanding or
committed to be incurred on the date such Currency Agreements or Interest
Rate Agreements are entered into;
(c) Indebtedness of any wholly owned Subsidiary to any other wholly
owned Subsidiary or to the Company;
(d) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by any
Subsidiary of any Indebtedness of such Subsidiary pursuant to clause (a) of
this definition, including any successive refinancings by such Subsidiary,
so long as any such new Indebtedness shall be in a principal amount that
does not exceed the principal amount (or, if such Indebtedness being
refinanced provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination) so refinanced plus the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by such Subsidiary as necessary to accomplish
such refinancing, plus the amount of expenses of such Subsidiary incurred
in connection with such refinancing;
(e) guarantees by Subsidiaries of Indebtedness of the Company entered
into in accordance with the "Limitation on Guarantees of Indebtedness by
Subsidiaries" covenants and guarantees by Subsidiaries of Permitted
Subsidiary Indebtedness of wholly owned Subsidiaries; and
(f) Indebtedness of Subsidiaries in addition to any amounts listed in
clauses (a) through (e) above in an aggregate principal amount at any one
time outstanding not to exceed $20 million, less the amount of Permitted
Indebtedness then outstanding pursuant to clause (f) of the definition
hereof.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock whether outstanding on the date of the
Indenture, or issued thereafter, and including, without limitation, all classes
and series of preferred or preference stock of such Person.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity.
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"Related Parties" means (a) the spouse, children or other descendants (by
blood or adoption), stepchildren, siblings, and in-laws of Michael A. Chowdry or
the spouse of Michael A. Chowdry; (b) the heirs, legatees, devisees,
distributees, personal representatives, or the estate of Michael A. Chowdry or
of persons listed in the foregoing clause (a); (c) any trust primarily for the
benefit of Michael A. Chowdry or any of the persons or entities listed in the
foregoing clauses of this definition; (d) any trust, corporation, limited or
general partnership limited liability company or partnership or other entity of
which Michael A. Chowdry and/or any of the other persons or entities listed in
the foregoing clauses of this definition are the beneficial owners (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time) of a controlling interest in the outstanding voting and
equity securities or interests; (e) a transferee pursuant to a decree of
dissolution of marriage relating to Michael A. Chowdry or a Person that has been
immediately prior to the disposition of a Related Person under any clause of
this definition; or (f) a transferee by disposition in an involuntary manner
without the consent of Michael A. Chowdry or a Person that has been immediately
prior to the disposition a Related Person under any clause of this definition,
including, but not limited to, disposition under judicial orders.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc., and its successors.
"Significant Subsidiary" means any Subsidiary of the Company that, together
with its Subsidiaries, (i) for the most recent fiscal year of the Company,
accounted for more than 10% of the consolidated revenues of the Company and its
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 10% of the consolidated assets of the Company and its Subsidiaries, all as
set forth on the most recently available consolidated financial statements of
the Company for such fiscal year.
"Stated Maturity" means, when used with respect to the Notes or any
installment of interest thereon, the date specified in the Note as the fixed
date on which the principal of the Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries. For purposes of the Indenture, the term Subsidiary shall not
include any Unrestricted Subsidiary, except in the definition of Unrestricted
Subsidiary.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (b) any Subsidiary
of an Unrestricted Subsidiary and (c) Atlas Freighter Leasing, Inc. is an
Unrestricted Subsidiary as of the Issue Date. Atlas Freighter Leasing II, Inc.
("AFL II") may be designated an Unrestricted Subsidiary at any time on or after
the Issue Date (and such designation shall not be deemed a Restricted Payment
for purposes of "-- Limitation on Restricted Payments"), provided Investments by
the Company in AFL II since the Issue Date and outstanding on the date of
designation shall not exceed $5 million in the aggregate. The Board of Directors
of the Company may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither
the Company nor any Subsidiary is directly or indirectly liable for any
Indebtedness of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Subsidiary
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity, (iii) any Investment in
such Subsidiary made as a result of designation of such Subsidiary an
Unrestricted Subsidiary or otherwise was permitted under paragraph (a), clause
(iv) of the "Limitation on Restricted Payments" covenant, (iv) neither the
Company nor any Subsidiary has a contract, agreement, arrangement, understanding
or obligation of any kind, whether written or oral, with such Subsidiary other
than those that might be obtained at the time from Persons who are not
affiliates of the Company, and (v) neither the
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Company nor any Subsidiary has any obligation (1) to subscribe for additional
shares of Capital Stock or other equity interests in such Subsidiary, or (2) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Indenture
Trustee by filing a board resolution with the Indenture Trustee giving effect to
such designation. The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Subsidiary if immediately after giving effect to
such designation, there would be no Default or Event of Default under the
Indenture and the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the "Limitation on Indebtedness"
covenant.
"Voting Stock" means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences of (i) the exchange of Old Notes for New Notes and (ii) the
ownership and disposition of the New Notes. This summary is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change (including changes in effective dates) or possible differing
interpretations. It assumes that the Old Notes and New Notes are (or will be)
held as capital assets. It does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, dealers in securities or currencies, persons holding New
Notes as a hedge against currency risks or as a position in a "straddle" for tax
purposes, or persons whose functional currency is not the United States dollar.
It also does not deal with holders other than Holders participating in the
Exchange Offer (except where otherwise specifically noted). Persons considering
participation in the Exchange Offer should consult their own tax advisors
concerning the application of United States federal income tax laws to their
particular situations as well as any consequences of the exchange of Old Notes
for New Notes, and the ownership and disposition of the New Notes arising under
the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a New
Note that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate that is described in Section
7701(a)(30)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), or
a trust that is described in Section 7701(a)(30)(E) of the Code or (iv) any
other person whose income or gain in respect of a New Note is effectively
connected with the conduct of a United States trade or business. As used herein,
the term "non-U.S. Holder" means a beneficial owner of a New Note that is not a
U.S. Holder.
FEDERAL INCOME TAX CONSEQUENCES OF TENDERING OLD NOTES FOR NEW NOTES
Exchange Offer. The exchange of Old Notes for New Notes pursuant to the
Exchange Offer should not be treated as an exchange or other taxable event for
United States federal income tax purposes because under Treasury regulations,
the New Notes should not be considered to differ materially in kind or extent
from the Old Notes. Rather, the New Notes received by a holder should be treated
as a continuation of the Old Notes in the hands of such holder. As a result,
there should be no United States federal income tax consequences to holders who
exchange Old Notes for New Notes pursuant to the Exchange Offer and any such
holder should have the same tax basis and holding period in the New Notes as it
had in the Old Notes immediately before the exchange.
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FEDERAL INCOME TAX CONSEQUENCES OF OWNING NEW NOTES
U.S. Holders
Payment of Interest. The Old Notes were not issued with original issue
discount. As a result, payments of interest on a New Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received, in accordance with the U.S. Holder's regular method
of tax accounting.
Market Discount. A Note will be considered to bear "market discount" if the
U.S. Holder's tax basis for the Note is less than the principal amount of the
Note by more than a de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment on, or any gain realized on the sale, exchange,
retirement or other disposition of, a Note as ordinary income to the extent of
the lesser of (i) the amount of such payment or realized gain or (ii) the market
discount which has not previously been included in income and is treated as
having accrued on such New Note at the time of such payment or disposition.
Market discount will be considered to accrue on a straight-line basis during the
period from the date of acquisition to the maturity date of the Note, unless the
U.S. Holder elects to accrue market discount on the basis of semiannual
compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a New Note with market discount until the maturity of the New
Note or certain earlier dispositions. A U.S. Holder may elect to include market
discount in income currently as it accrues, in which case the rules described
above regarding the treatment as ordinary income of gain upon the disposition of
the Note and upon the receipt of certain cash payments and regarding the
deferral of interest deductions will not apply. Persons considering making this
election should consult their tax advisors.
Premium. If a U.S. Holder's initial tax basis in any Note is greater than
the principal amount of the Note, the Note will be considered to have
"amortizable bond premium" equal in amount to such excess. A U.S. Holder may
elect to amortize such premium using a constant yield method over the remaining
term of the New Note and may offset interest otherwise required to be included
in respect of the New Note during any taxable year by the amortized amount of
such excess for the taxable year. Any election to amortize bond premium applies
to all taxable debt instruments acquired by the U.S. Holder on or after the
first day of the first taxable year to which such election applies and may be
revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale, exchange
or retirement of a New Note, a U.S. Holder generally will recognize taxable gain
or loss equal to the difference between the amount realized on the sale,
exchange or retirement (other than amounts representing accrued and unpaid
interest) and such U.S. Holder's adjusted tax basis in the New Note. A U.S.
Holder's adjusted tax basis in a New Note generally will equal such U.S.
Holder's initial investment in the Note increased by any accrued market discount
that the U.S. Holder has included in income and decreased by the amount of any
amortizable bond premium taken with respect to such Note. Such gain or loss
generally will be capital gain or loss and will, in the case of individuals, be
long-term capital gain or loss subject to a maximum rate of 20% if the Note has
been held for more than 18 months at the time of such disposition. An individual
will be taxed on his or her net capital gain at a rate of 28% for property held
for 18 months or less but more than one year. Special rates (and generally lower
maximum rates) apply to individuals in lower tax brackets.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a New Note, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of the Company or a controlled foreign
corporation related to the Company. To qualify for the exemption from taxation,
the last United States payor in the chain of payment prior to payment to a
non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial owner
of the New Note under penalties of perjury, (ii) certifies that such owner is
not a U.S. Holder and (iii) provides the name and address of the beneficial
owner. The statement
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may be made on an IRS Form W-8 or a substantially similar form, and the
beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a New Note is
held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. Proposed Treasury
Regulations have been issued which, if adopted, could affect these withholding
rules and other U.S. federal tax rules applicable to non-U.S. Holders, and
non-U.S. Holders should therefore consult their tax advisors with respect to the
effect of such proposed Treasury Regulations.
Generally, a non-U.S. Holder will not be subject to federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
New Note, provided the gain is not effectively connected with the conduct of a
trade or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The New Notes will not be includible in the estate of a non-U.S. Holder
unless the individual is a direct or indirect 10% or greater shareholder of the
Company or, at the time of such individual's death, payments in respect of the
New Notes would have been effectively connected with the conduct by such
individual of a trade or business in the United States.
Backup Withholding; Information Reporting
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the New Notes to registered owners who are
not "exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the New Notes to a U.S. Holder must be reported to the IRS, unless
the U.S. Holder is an exempt recipient or establishes an exemption. Compliance
with the identification procedures described in the preceding section would
establish an exemption from backup withholding for those non-U.S. Holders who
are not exempt recipients.
In addition, upon the sale of a New Note to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient or
(ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Holder, certifies that such seller is
a non-U.S. Holder (and certain other conditions are met). Such a sale must also
be reported by the broker to the IRS, unless either (a) the broker determines
that the seller is an exempt recipient or (b) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the registered
owner's non-U.S. status would be made normally on an IRS Form W-8 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the Expiration Date and ending on the close of business on the 180th day
following the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
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The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Act and any profit of any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. By acceptance of the Exchange Offer, each
broker-dealer that receives New Notes pursuant to the Exchange Offer hereby
agrees to notify the Company prior to using this Prospectus in connection with
the sale or transfer of New Notes, and acknowledges and agrees that, upon
receipt of notice from the Company of the happening of any event which makes any
statement in this Prospectus untrue in any material respect or which requires
the making of any changes in this Prospectus in order to make the statements
herein not misleading (which notice the Company agrees to deliver promptly to
such broker-dealer), such broker-dealer will suspend use of this Prospectus
until the Company has amended or supplemented the Prospectus to correct such
misstatement or omission and has furnished copies of the amended or supplemented
prospectus to such broker-dealer.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of any one special
counsel for the holders of the Notes) other than commissions or concessions of
any brokers or dealers and will indemnify the holders of the Notes participating
in the Exchange Offer (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the New Notes offered hereby will
be passed upon for the Company by Cahill Gordon & Reindel, New York, New York (a
partnership including a professional corporation).
EXPERTS
The audited consolidated financial statements incorporated by reference in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in giving said report.
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======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF ANY
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information................. iv
Incorporation of Certain Documents by
Reference........................... iv
Special Note Regarding Forward-Looking
Information......................... v
Summary............................... 1
Risk Factors.......................... 9
Capitalization........................ 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 29
Management............................ 37
Description of Certain Indebtedness... 39
The Exchange Offer.................... 41
Description of Notes.................. 48
Certain United States Federal Income
Tax Considerations.................. 71
Plan of Distribution.................. 73
Legal Matters......................... 74
Experts............................... 74
</TABLE>
======================================================
======================================================
$150,000,000
ATLASAIR LOGO
ATLASAIR LOGO
OFFER TO EXCHANGE ITS
10 3/4% SENIOR NOTES DUE 2005,
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT, FOR
ITS 10 3/4% SENIOR NOTES DUE 2005,
WHICH HAVE NOT BEEN REGISTERED
--------------------
PROSPECTUS
--------------------
NOVEMBER 5, 1997
======================================================
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Restated Certificate of
Incorporation of Atlas Air, Inc. (the "Charter") provide for indemnification of
directors and officers for liabilities and expenses incurred in defending
actions brought against them in such capacities. The Company's Charter provides
that the Company shall indemnify directors of the Company to the maximum extent
now or hereafter permitted by law, and officers, employees and agents of the
Company to the extent required by law and may, as authorized hereafter by the
Board of Directors, provide further indemnification to officers, employees and
agents of the Company to the maximum extent now or hereafter permitted by law.
The Company maintains directors' and officers' liability insurance covering
all directors and officers of the Company against claims arising out of the
performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+2.1 -- Plan of Reorganization and Merger Agreement dated as of
July 12, 1995 by and between Holdings and the Company.
+3.2 -- Restated Certificate of Incorporation of the Company.
+3.3 -- Amended and Restated By-Laws of the Company.
++4.1 -- Form of Indenture between the Company and First Fidelity
Bank, N.A., as Trustee.
++4.2 -- Form of Second Indenture between the Company and First
Fidelity Bank, N.A., as Trustee.
++4.3 -- Form of Pass Through Trust Agreement between the Company
and First Fidelity Bank, N.A., as Trustee (with form of
Pass Through Certificate attached as exhibit thereto).
++4.4 -- Form of Pass Through Agreement between the Company and
First Fidelity Bank, N.A., as Trustee (with form of Pass
Through Certificate attached as exhibit thereto).
*****5.1 -- Opinion of Cahill Gordon & Reindel as to the legality of
the New Notes.
+10.14 -- Boeing 747 Maintenance Agreement dated January 1, 1995,
between the Company and KLM Royal Dutch Airlines, as
amended.
+10.15 -- Atlas Air, Inc. 1995 Long Term Incentive and Stock Award
Plan.
+10.16 -- Atlas Air, Inc. Employee Stock Purchase Plan.
+10.17 -- Atlas Air, Inc. Profit Sharing Plan.
+10.18 -- Atlas Air, Inc. Retirement Plan.
++10.19 -- Employment Agreement between the Company and Michael A.
Chowdry.
++10.20 -- Employment Agreement between the Company and Richard H.
Shuyler.
++10.23 -- Employment Agreement between the Company and James T.
Matheny.
+10.26 -- Maintenance Agreement between the Company and Hong Kong
Aircraft Engineering Company Limited dated April 12,
1995, for the performance of certain maintenance events.
+10.30 -- Conditional Sales Agreement dated as of September 22,
1994 by and between Lufthansa and the Company relating to
B747-230 aircraft, registration D-ABYS.
</TABLE>
II-1
II-2
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.31 -- Conditional Sales Agreement dated as of September 22,
1994 by and between Lufthansa and the Company relating to
B747-230 aircraft, registration D-ABYL.
*10.36 -- Aircraft Purchase Agreement, dated as of January 19, 1996
between Langdon Asset Management, Inc. and the Company.
**10.51 -- Employment Agreement dated as of April 19, 1996 between
the Company and Mickey P. Foret.
**10.52 -- Employment Agreement dated as of November 18, 1996
between the Company and R. Terrence Rendleman.
**10.53 -- Secured Loan Agreement by and between the Company and
Finova Capital Corporation dated April 11, 1996.
**10.54 -- Second Amended and Restated Credit Agreement among the
Company and the Lenders listed therein, Goldman Sachs
Credit Partners L.P. (as syndication agent) and Bankers
Trust Company (as Administrative Agent) dated February
28, 1997.
**/***10.55 -- Engine Maintenance Agreement between the Company and
General Electric Company dated June 6, 1996.
10.56 -- Employment Agreement dated as of May 1, 1997 between the
Company and Stanley G. Wraight.
10.57 -- Employment Agreement dated as of August 18, 1997 between
the Company and Nesa E. Hassanein.
10.58 -- Third Amended and Restated Credit Agreement among the
Company, the Lenders listed therein, Goldman Sachs Credit
Partners L.P. (as Syndication Agent) and Bankers Trust
Company (as Administrative Agent) dated September 5,
1997.
10.59 -- Credit Agreement among Atlas Freighter Leasing, Inc., the
Lenders listed therein and Bankers Trust Company, as
agent, dated May 29, 1997.
10.60 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N516MC.
10.61 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N508MC.
10.62 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee relating to B747-200
aircraft. U.S. Registration No. N507MC.
10.63 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N509MC.
10.64 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N808MC.
10.65 -- Lease Agreement between Atlas Freighter Leasing Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N505MC.
10.66 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N808MC.
10.67 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent relating to B747-200 aircraft. U.S.
Registration No. N507MC.
10.68 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N509MC.
</TABLE>
II-3
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.69 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freight Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N505MC
10.70 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freight Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N508MC.
10.71 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freight Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N516MC
10.72 -- Form of Indenture, dated August 13, 1997, between the
Company and State Street Bank and Trust Company, as
Trustee, relating to the 10 3/4% Senior Notes (with form
of Note attached as exhibit thereto)
10.73 -- Purchase Agreement, dated August 8, 1997, between the
Company and BT Securities Corporation relating to the
10 3/4% Senior Notes.
10.74 -- Registration Rights Agreement, dated August 13, 1997,
between the Company and BT Securities Corporation
relating to the 10 3/4% Senior Notes.
10.75 -- Credit Agreement among Atlas Freighter Leasing II, Inc.,
the Lenders listed therein, Bankers Trust Company (as
Administrative Agent) and Goldman Sachs Credit Partners
L.P. (as Syndication Agent) dated September 5, 1997.
10.76 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N527MC and Spare Engine Nos. 517538,
517539 and 455167.
10.77 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N523MC and Spare Engine Nos. 530168 and
517530.
10.78 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N524MC and Spare Engine Nos. 517790 and
517602.
10.79 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N526MC and Spare Engine Nos. 517544 and
517547.
10.80 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N523MC and Spare
Engine Nos. 530168 and 517530.
10.81 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N524MC and Spare
Engine Nos. 517790 and 517602.
10.82 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N526MC and Spare
Engine Nos. 517544 and 517547.
10.84 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N527MC and Spare
Engine Nos. 517538, 517539 and 455167.
</TABLE>
II-4
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.85 -- First Amendment to Lease Agreement among Atlas Freight
Leasing, Inc. and Bankers Trust Company, as agent, dated
September 5, 1997
****/*****10.86 -- Purchase Agreement Number 2021 between The Boeing Company
and the Company dated June 6, 1997.
10.87 -- Aircraft General Terms Agreement between The Boeing
Company and the Company dated June 6, 1997.
+16.1 -- Letter dated July 21, 1995 from Ernst & Young to the
Securities and Exchange Commission.
21.1 -- Subsidiaries of the Registrant.
*****23.1 -- Consent of Independent Public Accountants.
*****23.2 -- Consent of Cahill Gordon & Reindel (included in Exhibit
5.1).
24.1 -- Powers of Attorney (set forth on the signature page of
the Registration Statement).
25 -- Statement of Eligibility of Trustee.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
+ Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 33-90304).
++ Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 33-97892).
* Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 333-2810).
**Incorporated by reference to the exhibits to the Company's Annual Report
for 1996 on Form 10-K.
*** Portions of this document, for which the Company has been granted
confidential treatment, have been redacted and filed separately with the
Securities and Exchange Commission.
**** Portions of this document, for which the Company has requested
confidential treatment, have been redacted and filed separately with the
Securities and Exchange Commission.
***** Filed herewith.
(b) Schedules.
All schedules are omitted as the required information is presented in
the Registrant's consolidated financial statements or related notes or such
schedules are not applicable.
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrants hereby undertake as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of the
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 86
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
The undersigned registrants hereby undertake to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the SEC under Section 305(b)(2) of the Act.
II-6
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to be signed on its behalf by the
undersigned, hereunto duly authorized in the City of Denver, State of Colorado
on the 4th day of November, 1997.
ATLAS AIR, INC.
By: /s/ RICHARD H. SHUYLER
----------------------------------
Name: Richard H. Shuyler
Title: Senior Vice
President -- Finance and
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL A. CHOWDRY* Chairman of the Board, Chief November 4, 1997
- ----------------------------------------------------- Executive Officer,
Michael A. Chowdry President and Director
/s/ RICHARD H. SHUYLER Senior Vice President -- November 4, 1997
- ----------------------------------------------------- Finance and Chief
Richard H. Shuyler Financial Officer,
Treasurer and Director
/s/ JAMES J. BLANCHARD* Director November 4, 1997
- -----------------------------------------------------
James J. Blanchard
/s/ LAWRENCE W. CLARKSON* Director November 4, 1997
- -----------------------------------------------------
Lawrence W. Clarkson
/s/ DAVID T. MCLAUGHLIN* Director November 4, 1997
- -----------------------------------------------------
David T. McLaughlin
/s/ BRIAN ROWE* Director November 4, 1997
- -----------------------------------------------------
Brian Rowe
* Signed by Attorney-in-fact
/s/ RICHARD H. SHUYLER
- -----------------------------------------------------
Richard H. Shuyler
Attorney-in-fact
</TABLE>
II-7
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+2.1 -- Plan of Reorganization and Merger Agreement dated as of
July 12, 1995 by and between Holdings and the Company.
+3.2 -- Restated Certificate of Incorporation of the Company.
+3.3 -- Amended and Restated By-Laws of the Company.
++4.1 -- Form of Indenture between the Company and First Fidelity
Bank, N.A., as Trustee.
++4.2 -- Form of Second Indenture between the Company and First
Fidelity Bank, N.A., as Trustee.
++4.3 -- Form of Pass Through Trust Agreement between the Company
and First Fidelity Bank, N.A., as Trustee (with form of
Pass Through Certificate attached as exhibit thereto).
++4.4 -- Form of Pass Through Agreement between the Company and
First Fidelity Bank, N.A., as Trustee (with form of Pass
Through Certificate attached as exhibit thereto).
*****5.1 -- Opinion of Cahill Gordon & Reindel as to the legality of
the New Notes.
+10.14 -- Boeing 747 Maintenance Agreement dated January 1, 1995,
between the Company and KLM Royal Dutch Airlines, as
amended.
+10.15 -- Atlas Air, Inc. 1995 Long Term Incentive and Stock Award
Plan.
+10.16 -- Atlas Air, Inc. Employee Stock Purchase Plan.
+10.17 -- Atlas Air, Inc. Profit Sharing Plan.
+10.18 -- Atlas Air, Inc. Retirement Plan.
++10.19 -- Employment Agreement between the Company and Michael A.
Chowdry.
++10.20 -- Employment Agreement between the Company and Richard H.
Shuyler.
++10.23 -- Employment Agreement between the Company and James T.
Matheny.
+10.26 -- Maintenance Agreement between the Company and Hong Kong
Aircraft Engineering Company Limited dated April 12,
1995, for the performance of certain maintenance events.
+10.30 -- Conditional Sales Agreement dated as of September 22,
1994 by and between Lufthansa and the Company relating to
B747-230 aircraft, registration D-ABYS.
+10.31 -- Conditional Sales Agreement dated as of September 22,
1994 by and between Lufthansa and the Company relating to
B747-230 aircraft, registration D-ABYL.
*10.36 -- Aircraft Purchase Agreement, dated as of January 19, 1996
between Langdon Asset Management, Inc. and the Company.
**10.51 -- Employment Agreement dated as of April 19, 1996 between
the Company and Mickey P. Foret.
**10.52 -- Employment Agreement dated as of November 18, 1996
between the Company and R. Terrence Rendleman.
**10.53 -- Secured Loan Agreement by and between the Company and
Finova Capital Corporation dated April 11, 1996.
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
**10.54 -- Second Amended and Restated Credit Agreement among the
Company and the Lenders listed therein, Goldman Sachs
Credit Partners L.P. (as syndication agent) and Bankers
Trust Company (as Administrative Agent) dated February
28, 1997.
**/***10.55 -- Engine Maintenance Agreement between the Company and
General Electric Company dated June 6, 1996.
10.56 -- Employment Agreement dated as of May 1, 1997 between the
Company and Stanley G. Wraight.
10.57 -- Employment Agreement dated as of August 18, 1997 between
the Company and Nesa E. Hassanein.
10.58 -- Third Amended and Restated Credit Agreement among the
Company, the Lenders listed therein, Goldman Sachs Credit
Partners L.P. (as Syndication Agent) and Bankers Trust
Company (as Administrative Agent) dated September 5,
1997.
10.59 -- Credit Agreement among Atlas Freighter Leasing, Inc., the
Lenders listed therein and Bankers Trust Company, as
agent, dated May 29, 1997.
10.60 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N516MC.
10.61 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N508MC.
10.62 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee relating to B747-200
aircraft. U.S. Registration No. N507MC.
10.63 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N509MC.
10.64 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N808MC.
10.65 -- Lease Agreement between Atlas Freighter Leasing Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N505MC.
10.66 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N808MC.
10.67 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent relating to B747-200 aircraft. U.S.
Registration No. N507MC.
10.68 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N509MC.
10.69 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freight Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N505MC
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.70 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freight Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N508MC.
10.71 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freight Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N516MC
10.72 -- Form of Indenture, dated August 13, 1997, between the
Company and State Street Bank and Trust Company, as
Trustee, relating to the 10 3/4% Senior Notes (with form
of Note attached as exhibit thereto)
10.73 -- Purchase Agreement, dated August 8, 1997, between the
Company and BT Securities Corporation relating to the
10 3/4% Senior Notes.
10.74 -- Registration Rights Agreement, dated August 13, 1997,
between the Company and BT Securities Corporation
relating to the 10 3/4% Senior Notes.
10.75 -- Credit Agreement among Atlas Freighter Leasing II, Inc.,
the Lenders listed therein, Bankers Trust Company (as
Administrative Agent) and Goldman Sachs Credit Partners
L.P. (as Syndication Agent) dated September 5, 1997.
10.76 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N527MC and Spare Engine Nos. 517538,
517539 and 455167.
10.77 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N523MC and Spare Engine Nos. 530168 and
517530.
10.78 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N524MC and Spare Engine Nos. 517790 and
517602.
10.79 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N526MC and Spare Engine Nos. 517544 and
517547.
10.80 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N523MC and Spare
Engine Nos. 530168 and 517530.
10.81 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N524MC and Spare
Engine Nos. 517790 and 517602.
10.82 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N526MC and Spare
Engine Nos. 517544 and 517547.
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.84 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N527MC and Spare
Engine Nos. 517538, 517539 and 455167.
10.85 -- First Amendment to Lease Agreement among Atlas Freight
Leasing, Inc. and Bankers Trust Company, as agent, dated
September 5, 1997
****/*****10.86 -- Purchase Agreement Number 2021 between The Boeing Company
and the Company dated June 6, 1997.
10.87 -- Aircraft General Terms Agreement between The Boeing
Company and the Company dated June 6, 1997.
+16.1 -- Letter dated July 21, 1995 from Ernst & Young to the
Securities and Exchange Commission.
21.1 -- Subsidiaries of the Registrant.
*****23.1 -- Consent of Independent Public Accountants.
*****23.2 -- Consent of Cahill Gordon & Reindel (included in Exhibit
5.1).
24.1 -- Powers of Attorney (set forth on the signature page of
the Registration Statement).
25 -- Statement of Eligibility of Trustee.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
+ Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 33-90304).
++ Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 33-97892).
* Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 333-2810).
**Incorporated by reference to the exhibits to the Company's Annual Report
for 1996 on Form 10-K.
*** Portions of this document, for which the Company has been granted
confidential treatment, have been redacted and filed separately with the
Securities and Exchange Commission.
**** Portions of this document, for which the Company has requested
confidential treatment, have been redacted and filed separately with the
Securities and Exchange Commission.
***** Filed herewith.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF CAHILL GORDON & REINDEL]
November 5, 1997
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
(212) 701-3000
Ladies and Gentlemen:
We have examined a copy of the Registration Statement on Form S-4, with
all amendments thereto (No. 333-36305) (the "Registration Statement"), filed
by Atlas Air, Inc. (the "Company") with the Securities and Exchange Commission
(the "Commission") on September 24, 1997 and relating to the registration
pursuant to the provisions of the Securities Act of 1933, as amended (the
"Act"), of up to $150,000,000 principal amount of 10 3/4% Notes due 2005 (the
"New Notes"). The New Notes, which upon the effectiveness of the Registration
Statement will be registered under the Act, will be issued in exchange for a
like principal amount of the Company's outstanding 10 3/4% Notes due 2005 (the
"Old Notes"), which are not registered under the Act. The New Notes will be
issued pursuant to an Indenture (the "Indenture") dated as of August 13, 1997,
between the Company and State Street Bank & Trust Company. In rendering this
opinion, we have reviewed such documents and made such investigations as we
have deemed appropriate.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
<PAGE> 2
-2-
The New Notes have been duly authorized for issuance and, when duly
executed, authenticated, registered, issued and delivered in exchange for Old
Notes of a like principal amount, in accordance with the terms of the Indenture
and as contemplated by the Registration Statement, will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the Indenture,
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and similar laws affecting creditors' rights and remedies
generally and subject to general principles of equity.
We are members of the bar of the State of New York and do not purport
to be experts in, or to express any opinion concerning, the laws of any
jurisdiction other than the law of the State of the New York, the Delaware
General Corporation Law and the federal laws of the United States of America.
Neither this opinion nor any part hereof may be delivered to, used or
relied upon by any person other than you without our prior written consent.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and to the reference to our firm under
the caption "Legal Matters" in the Registration Statement and related
prospectus. Our consent to such reference does not constitute a consent under
Section 7 of the Securities Act, and in consenting to such reference we have
not certified any part of the Registration Statement and do not otherwise come
within the categories of persons whose consent is required under said Section 7
or under the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ CAHILL GORDON & REINDEL
--------------------------------
Cahill Gordon & Reindel
<PAGE> 1
EXHIBIT 10.86
PURCHASE AGREEMENT NUMBER 2021
between
THE BOEING COMPANY
and
ATLAS AIR, INC.
Relating to Boeing Model 747-400F Aircraft
P.A. No. 2021
CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED FOR
BRACKETED MATERIAL ("[ ]")
REDACTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SA
ARTICLES NUMBER
- -------- ------
<S> <C>
1. Quantity, Model and Description
2. Delivery Schedule
3. Price
4. Payment
5. Miscellaneous
TABLE
1. Aircraft Information Table
EXHIBIT
A. Aircraft Configuration
B. Aircraft Delivery Requirements and Responsibilities
SUPPLEMENTAL EXHIBITS
CS1. Customer Support Variables
EE1. Engine Escalation/Engine Warranty and Patent Indemnity
SLP1. Service Life Policy Components
LETTER AGREEMENTS
2021-1 Seller Purchased Equipment
2021-2 Option Aircraft
2021-3 Escalation Sharing
</TABLE>
i
P.A. No. 2021
<PAGE> 3
<TABLE>
<CAPTION>
SA
LETTER AGREEMENTS (CONTINUED) NUMBER
- ---------------------------- ------
<S> <C>
2021-4 Demonstration Flights
2021-5 Spares Initial Provisioning
2021-6 Multiple Aircraft Operating Weights
2021-7 Promotion Support
6-1162-DSF-082 Aircraft Performance Guarantees
6-1162-DSF-083 Certain Contractual Matters
6-1162-DSF-084 Airframe Maintenance Cost Protection Program
6-1162-DSF-085 Open Configuration Matters
6-1162-DSF-086 Remedy for Deviation from Fuel Burn Objective
6-1162-DSF-098 Taxes - Boeing Opinion
6-1162-DSF-099 Special Purchase Agreement Provisions
</TABLE>
ii
P.A. No. 2021
<PAGE> 4
Purchase Agreement No. 2021
between
The Boeing Company
and
Atlas Air, Inc.
------------------------------
This Purchase Agreement No. 2021 dated as of , 1997 between The Boeing
Company (Boeing) and Atlas Air, Inc. (Customer) relating to the purchase and
sale of Model 747-400F aircraft incorporates the terms and conditions of the
Aircraft General Terms Agreement dated as of , 1997 between the parties,
identified as AGTA-TLS (AGTA).
Article 1. Quantity, Model and Description.
The aircraft to be delivered to Customer will be designated as Model
747-400F aircraft (the Aircraft). Boeing will manufacture and sell to Customer
Ten (10) Aircraft to conform to the configuration described in Exhibit A, which
is part of this Purchase Agreement.
Article 2. Delivery Schedule.
The scheduled months of delivery of the Aircraft are listed in the attached
Table 1, which is part of this Purchase Agreement.
Article 3. Price.
3.1. Aircraft Basic Price. The Aircraft Basic Price in
subject to escalation dollars is listed in Table 1.
3.2. Advance Payment Base Prices. The Advance Payment Base
Prices listed in Table 1 were calculated utilizing the latest escalation
factors available to Boeing on the date of this Purchase Agreement projected to
the month of scheduled delivery.
3.3. The components of the Aircraft Basic Price and the
calculation of the Advance Payment Base Prices for the Aircraft are listed in
Table 1.
-1-
P.A. No. 2021
<PAGE> 5
Article 4. Payment.
4.1. Boeing acknowledges receipt of a deposit in the amount shown
in Table 1 for each Aircraft (Deposit).
4.2. The standard advance payment schedule for the Model 747-400F
aircraft requires the purchaser to make certain advance payments, expressed in
a percentage of the Advance Payment Base Price of each aircraft beginning with
a payment of 1%, less the Deposit, on the effective date of the purchase
agreement for the aircraft. Additional advance payments for each aircraft are
due on the first business day of the months listed in the attached Table 1.
4.3. Since the scheduled delivery month of the first four (4)
Aircraft is less than 24 months from the date of the Purchase Agreement,
Customer will make a payment of 20%, less the Deposit, on the first Aircraft, a
payment of 15%, less the Deposit, on each of the next two Aircraft, a payment
of 5%, less the Deposit on the next Aircraft and a payment of 1%, less the
Deposit, on the remaining five (5) Aircraft upon signing the Purchase
Agreement. Customer will make additional advance payments for all the Aircraft
in accordance with the attached Table 1.
4.4. Customer will pay the balance of the Aircraft Price of each
Aircraft at delivery.
Article 5. Miscellaneous.
5.1. Aircraft Information Table. Table 1 consolidates information
contained in Articles 1, 2, 3 and 4 with respect to (i) quantity of Aircraft,
(ii) applicable Detail Specification, (iii) month and year of scheduled
deliveries, (iv) Aircraft Basic Price, (v) applicable escalation factors and
(vi) Advance Payment Base Prices and advance payments and their schedules.
5.2. Buyer Furnished Equipment Variables. Supplemental Exhibit BFE1
contains vendor selection dates, on dock dates and other variables applicable
to the Aircraft.
5.3. Customer Support Variables. Supplemental Exhibit CS1 contains
the variable information applicable to information, training services and other
things furnished by Boeing in support of the Aircraft.
5.4. Engine Escalation Variables. Supplemental Exhibit EE1 contains
the applicable engine escalation formula, the engine warranty and the engine
patent indemnity for the Aircraft.
-2-
P.A. No. 2021
<PAGE> 6
5.5. Service Life Policy Component Variables. Supplemental Exhibit
SLP1 lists the airframe and landing gear components covered by the Service Life
Policy for the Aircraft.
5.6. Negotiated Agreement; Entire Agreement. This Purchase
Agreement, including the provisions of Article 8.2 of the AGTA relating to
insurance, and Article 11 of Part 2 of Exhibit C of the AGTA relating to
DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES, has
been the subject of discussion and negotiation and is understood by the
parties; the Aircraft Price and other agreements of the parties stated in this
Purchase Agreement were arrived at in consideration of such provisions. This
Purchase Agreement, including the AGTA, contains the entire agreement between
the parties and supersedes all previous proposals, understandings, commitments
or representations whatsoever, oral or written, and may be changed only in
writing signed by authorized representatives of the parties.
* * * * * * * * * * * * * * * *
DATED AS OF JUNE 6, 1997
ATLAS AIR, INC. THE BOEING COMPANY
By /s/ M.A. Chowdry By /s/ Dawn S. Foster
------------------------- ------------------------
Its CEO Its Attorney-In-Fact
------------------------- ------------------------
-3-
P.A. No. 2021
<PAGE> 7
<TABLE>
<CAPTION>
Table 1GE to Purchase Agreement 2021
Aircraft Delivery, Description, Price and Advance Payments
<S> <C> <C> <C> <C>
Airframe Model/MTGW: 747-400F 850,000 Detail Specification: D019U002 (5/7/97)
Engine Model/Thrust Level: CF6-80C2BIF 57,900 Price Base Year: Jul-95
Airframe Base Price: [ ]
Optional Features: [ ] Airframe Escalation Data:
--------- ------------------------
Sub-Total of Airframe and Features: [ ] Base Year Index (ECI): 130.10
Engine Price (Per Aircraft): [ ] Base Year Index (ICI): 123.60
Buyer Furnished Equipment (BFE) Estimate $0
Seller Purchased Equipment (SPE) Estimate: [ ] Engine Escalation Data:
Aircraft Basic Price (Excluding BFE/SPE): [ ] Base Year Index (CPI): 129.660
=========
Refundable Deposit per A/C at Proposal Acceptance: [ ]
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Advance Payment Per Aircraft
- ------------------------------------------------------------------------------------------------------------------------------------
Escalation Escalation Escalation Escalation Estimate (Amts. Due/Mos. Prior to Delivery)
- ------------------------------------------------------------------------------------------------------------------------------------
Delivery Number of Factor Factor Credit Adv Payment Base At Signing 24 Mos. 21/18/15/12/9/6 Total
- ------------------------------------------------------------------------------------------------------------------------------------
Mos.
- ------------------------------------------------------------------------------------------------------------------------------------
Date Aircraft (Airframe) (Engine) Memorandum Price Per A/P 1% 4% 5% 35%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
May-98 1 1.0813 1.05 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
June-98 1 1.0835 1.054 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Aug-98 1 1.0864 1.065 [ ] [ ] [ [ [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Sept-98 1 1.0877 1.068 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Apr-99 1 1.0961 1.067 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Jun-99 1 1.0995 1.074 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Feb-00 1 1.1363 1.09 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Mar-00 1 1.1409 1.093 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Aug-00 1 1.1622 1.105 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Apr-01 1 1.188 1.119 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
ATLAS AIR, INC.
Exhibit A to Purchase Agreement Number 2021
A
P.A. No. 2021
<PAGE> 9
AIRCRAFT CONFIGURATION
Dated
------------
relating to
BOEING MODEL 747-400F AIRCRAFT
The Detail Specification is Detail Specification D019U002TLS44F-1dated as
of TBD. Such Detail Specification will be comprised of Boeing Configuration
Specification D019U002 dated TBD as amended to incorporate the Options to be
listed below when configuration specification is complete, including the effects
on Manufacturer's Empty Weight (MEW) and Operating Empty Weight (OEW). Such
Options will be set forth in Boeing Document D019UCR1TLS44F-1, dated TBD. As
soon as practicable, Boeing will furnish to Buyer copies of the Detail
Specification, which copies will reflect such Options. The Aircraft Basic Price
will be revised to reflect and include all effects of such Options when
configuration specification is complete, except such Aircraft Basic Price does
not include the price effects of any Buyer Furnished Equipment or Seller
Purchased Equipment.
A-1
<PAGE> 10
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
between
THE BOEING COMPANY
and
ATLAS AIR, INC.
Exhibit B to Purchase Agreement Number 2021
B
P.A. No. 2021
<PAGE> 11
Exhibit B to
Purchase Agreement No. 2021
Page 1
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
relating to
BOEING MODEL 747-400F AIRCRAFT
Both Boeing and Customer have certain documentation and approval
responsibilities at various times during the construction cycle of Customer's
Aircraft that are critical to making the delivery of each Aircraft a positive
experience for both parties. This Exhibit B documents those responsibilities and
indicates recommended completion deadlines for the actions to be accomplished.
B-1
P.A. No. 2021
<PAGE> 12
Exhibit B to
Purchase Agreement No. 2021
Page 2
1. GOVERNMENT DOCUMENTATION REQUIREMENTS.
Certain actions are required to be taken by Customer in advance of the scheduled
delivery month of each Aircraft with respect to obtaining certain government
issued documentation.
1.1. Airworthiness and Registration Documents.
Not later than 6 months prior to delivery of each Aircraft,
Customer will notify Boeing of the registration number to be painted on the
side of the Aircraft. In addition, and not later than 3 months prior to
delivery of each Aircraft, Customer will, by letter to the regulatory authority
having jurisdiction, authorize the temporary use of such registration numbers
by Boeing during the pre-delivery testing of the Aircraft.
Customer is responsible for furnishing any Temporary or Permanent Registration
Certificates required by any governmental authority having jurisdiction to be
displayed aboard the Aircraft after delivery.
1.2. Certificate of Sanitary Construction.
1.2.1. U.S. Registered Aircraft. Boeing will obtain from the
United States Public Health Service, a United States Certificate of Sanitary
Construction to be displayed aboard each Aircraft after delivery to Customer.
1.2.2. Non-U.S. Registered Aircraft. If Customer requires a
United States Certificate of Sanitary Construction at the time of delivery of
the Aircraft, Customer will give written notice thereof to Boeing at least 3
months prior to delivery. Boeing will then use its reasonable best efforts to
obtain the Certificate from the United States Public Health Service and present
it to Customer at the time of Aircraft delivery.
1.3. Customs Documentation.
1.3.1. Import Documentation. If the Aircraft is intended to be
exported from the United States, Customer must notify Boeing not later than 3
months prior to delivery of each Aircraft of any documentation required by the
customs authorities or by any other agency of the country of import.
1.3.2. General Declaration - U.S. If the Aircraft is intended to
be exported from the United States, Boeing will prepare Customs Form 7507,
General Declaration, for execution by U.S. Customs immediately prior to the
ferry flight of the Aircraft.
B-2
P.A. No. 2021
<PAGE> 13
Exhibit B to
Purchase Agreement No. 2021
Page 3
For this purpose, Customer will furnish to Boeing not later than 20 days prior
to delivery a complete crew and passenger list and a complete ferry flight
itinerary, including point of exit from the United States for the Aircraft.
If Customer intends, during the ferry flight of an Aircraft, to land at a U.S.
airport after clearing Customs at delivery, Customer must notify Boeing not
later than 20 days prior to delivery of such intention. If Boeing receives such
notification, Boeing will provide to Customer the documents constituting a
Customs permit to proceed, allowing such Aircraft to depart after any such
landing. Sufficient copies of completed Form 7507, along with passenger
manifest, will be furnished Customer to cover U.S. stops scheduled for the ferry
flight.
1.3.3. Export Declaration - U.S. If the Aircraft is intended to
be exported from the United States, Boeing will prepare Form 7525V and,
immediately prior to the ferry flight, will submit such Form to U.S. Customs in
Seattle in order to obtain clearance for the departure of the Aircraft,
including any cargo, from the United States. U.S. Customs will deliver the
Export Declaration to the U.S. Department of Commerce after export.
2. INSURANCE CERTIFICATES.
Unless provided earlier, Customer will provide to Boeing not later
than 30 days prior to delivery of the first Aircraft, a copy of the requisite
annual insurance certificate in accordance with the requirements of Article 8
of the AGTA.
3. NOTICE OF FLYAWAY CONFIGURATION.
Not later than 20 days prior to delivery of the Aircraft, Customer
will provide to Boeing a configuration letter stating the requested "flyaway
configuration" of the Aircraft for its ferry flight. This configuration letter
should include:
(i) the name of the company which is to furnish fuel for
the ferry flight and any scheduled post-delivery
flight training, the method of payment for such fuel,
and fuel load for the ferry flight;
B-3
P.A. No. 2021
<PAGE> 14
Exhibit B to
Purchase Agreement No. 2021
Page 4
(ii) the cargo to be loaded and where it is to be stowed on
board the Aircraft and address where cargo is to be shipped
after flyaway;
(iii) any BFE equipment to be removed prior to flyaway and
returned to Boeing BFE stores for installation on
Customer's subsequent Aircraft;
(iv) a complete list of names and citizenship of each crew
member and non-revenue passenger who will be aboard the
ferry flight; and
(v) a complete ferry flight itinerary.
4. DELIVERY ACTIONS BY BOEING.
4.1. Schedule of Inspections. All FAA, Boeing, Customer and, if
required, U.S. Customs Bureau inspections will be scheduled by Boeing for
completion prior to delivery or departure of the Aircraft. Customer will be
informed of such schedules.
4.2. Schedule of Demonstration Flights. All FAA and Customer
demonstration flights will be scheduled by Boeing for completion prior to
delivery of the Aircraft.
4.3. Schedule for Customer's Flight Crew. Boeing will inform
Customer of the date that a flight crew is required for acceptance routines
associated with delivery of the Aircraft.
4.4. Fuel Provided by Boeing. Boeing will provide to Customer,
without charge, the amount of fuel shown in U.S. gallons in the table below for
the model of Aircraft being delivered and full capacity of engine oil at the
time of delivery or prior to the ferry flight of the Aircraft.
<TABLE>
<CAPTION>
Aircraft Model Fuel Provided
-------------- -------------
<S> <C>
737 1,000
747 4,000
757 1,600
767 2,000
777 3,000
</TABLE>
B-4
P.A. No. 2021
<PAGE> 15
Exhibit B to
Purchase Agreement No. 2021
Page 5
4.5. Flight Crew and Passenger Consumables. Boeing will provide food,
coat hangers, towels, toilet tissue, drinking cups and soap for the first
segment of the ferry flight for the Aircraft.
4.6. Delivery Papers, Documents and Data. Boeing will have available
at the time of delivery of the Aircraft all delivery papers, documents and data
for execution and delivery as described below. If title for the Aircraft will
be transferred to Customer through a Boeing sales subsidiary and if the
Aircraft will be registered with the FAA, Boeing will pre-position in Oklahoma
City, Oklahoma, for filing with the FAA at the time of delivery of the Aircraft
an executed original Form 8050-2, Aircraft Bill of Sale, indicating transfer of
title to the Aircraft from Boeing's sales subsidiary to Customer.
4.7. Delegation of Authority. If specifically requested in advance by
Customer, Boeing will present a certified copy of a Resolution of Boeing's
Board of Directors, designating and authorizing certain persons to act on its
behalf in connection with delivery of the Aircraft.
5. DELIVERY ACTIONS BY CUSTOMER.
5.1. Aircraft Radio Station License. At delivery Customer will
provide its Aircraft Radio Station License to be placed on board the Aircraft
following delivery.
5.2. Aircraft Flight Log. At delivery Customer will provide the
Aircraft Flight Log for the Aircraft.
5.3. Delegation of Authority. Customer will present to Boeing at
delivery of the Aircraft an original or certified copy of Customer's Delegation
of Authority designating and authorizing certain persons to act on its behalf
in connection with delivery of the specified Aircraft.
B-5
P.A. No. 2021
<PAGE> 16
CUSTOMER SUPPORT VARIABLES
between
THE BOEING COMPANY
and
ATLAS AIR, INC.
Supplemental Exhibit CS1 to Purchase Agreement Number 2021
CS1
P.A. No. 2021
<PAGE> 17
CUSTOMER SUPPORT VARIABLES
relating to
BOEING MODEL 747-400F AIRCRAFT
Customer and Boeing will conduct planning conferences approximately 12 months
before delivery of the first Aircraft, or as otherwise agreed, to develop and
schedule a customized Customer Support Program to be furnished by Boeing in
support of the Aircraft.
The customized Customer Services Program will be based upon and equivalent to
the entitlements summarized below.
Part 1: Maintenance and Flight Training Programs; Operations Engineering
Support
1. Maintenance Training.
1.1. Airplane General Familiarization Course; 1 class of 24
students;
1.2. Mechanical/Power Plant Systems Course; 2 classes of 15
students;
1.3. Electrical Systems Course; 2 classes of 15 students;
1.4. Avionics Systems Course; 2 classes of 15 students;
1.5. Corrosion Prevention & Control Course; 1 class of 10
students;
1.6. Aircraft Rigging Course; 1 class of 6 students;
1.7. Composite Repair for Technicians - Basic; 1 class of 8
students;
1.8. Cargo Loading Course - 1 class of 10 students.
1.9. Training materials will be provided to each student. In
addition, one set of training materials used in Boeing's
training program, including visual aids, Computer Based
Training Courseware, instrument panel wall charts,
text/graphics, video programs, etc. will be provided for use
in Customer's own training program.
CS1-1
P.A. No. 2021
<PAGE> 18
2. Flight Training.
2.1. Transition training for 8 flight crews (16 pilots) in 2 classes;
The training will consist of ground school (utilizing computer based training),
fixed base simulator, full flight simulator and actual aircraft training on
Customer's Aircraft.
2.2. Flight Dispatcher training; 2 classes of 6 students;
2.3. Flight Attendant training; 2 classes of 12 students;
2.4. Performance Engineer training in Boeing's regularly scheduled
courses; schedules are published twice yearly.
2.5. Training materials will be provided to each student. In
addition, one set of training materials as used in Boeing's training program,
including visual aids, Computer Based Training Courseware, instrument panel
wall charts, text/graphics, video programs, etc. will be provided for use in
Customer's own training program.
2.6. Additional Flight Operations Services:
a. Boeing flight crew personnel to assist in ferrying the first
aircraft to Customer's main base;
b. Instructor pilots for 90 calendar days for revenue service
training assistance;
c. An instructor pilot to visit Customer 6 months after revenue
service training to review Customer's flight crew operations for
a 2 week period.
3. Planning Assistance.
3.1. Maintenance and Ground Operations.
Upon request, Boeing will visit Customer's main base to evaluate
aircraft maintenance facilities, develop recommendations and assist in
maintenance planning.
3.2. Spares.
a) Recommended Spares Parts List (RSPL) customized RSPL, data and
documents will be provided to identify spare parts required for
Customer's support program.
CS1-2
P.A. No. 2021
<PAGE> 19
b) Illustrated Parts Catalog (IPC) A customized IPC in accordance
with ATA 100 will be provided.
c) Provisioning Training Provisioning training will be provided for
Customer's personnel at Boeing's facilities, where documentation
and technical expertise are available. Training is focused on the
initial provisioning process and calculations reflected in the
Boeing RSPL.
d) Spares Provisioning Conference A provisioning conference will be
conducted, normally at Boeing's facilities where technical data
and personnel are available.
4. Technical Data and Documents
4.1. Flight Operations.
Airplane Flight Manual
Operations Manual
Quick Reference Handbook
Weight and Balance Manual
Dispatch Deviation Procedures Guide
Flight Crew Training Manual
Baggage/Cargo Loading Manual
Performance Engineer's Manual
Jet Transport Performance Methods
FMC Supplemental Data Document
Operational Performance Software
4.2. Maintenance.
Aircraft Maintenance Manual
Wiring Diagram Manual
Systems Schematics Manual
Connector Part Number Options Document
Structural Repair Manual
Overhaul/Component Maintenance Manual
Standard Overhaul Practices Manual
Standard Wiring Practices Manual
Non-Destructive Test Manual
Service Bulletins and Index
Corrosion Prevention Manual
Fault Isolation Manual
Fuel Measuring Stick Calibration Document
CS1-3
P.A. No. 2021
<PAGE> 20
Power Plant Buildup Manual Built-In Test Equipment
(BITE) Manual Central Maintenance Computer System
Reporting Table In Service Activity Report All
Operator Letters Service Letters Structural Item
Interim Advisory Maintenance Tips Combined Index
4.3. Maintenance Planning.
Maintenance Planning Data Document
Maintenance Planning Data Tasks Masterfile
Maintenance Task Cards and Index
Maintenance Inspection Intervals Report
4.4. Spares.
Illustrated Parts Catalog
Standards Books
4.5. Facilities and Equipment Planning.
Facilities and Equipment Planning Document
Special Tool and Ground Handling Equipment
Drawings and Index
Supplementary Tooling Documentation
System Test Equipment Document
Illustrated Tool and Equipment List/Manual
Aircraft Recovery Document
Airplane Characteristics for Airport Planning
Document
Airplane Rescue and Fire Fighting Document
Engine Handling Document
4.6. Computer Software Index.
4.7. Supplier Technical Data.
Service Bulletins
Ground Support Equipment Data
Provisioning Information
Component Maintenance/Overhaul Manuals and Index
Publications Index
Product Support Supplier Directory
CS1-4
P.A. No. 2021
<PAGE> 21
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
between
THE BOEING COMPANY
and
ATLAS AIR, INC.
Supplemental Exhibit EE1 to Purchase Agreement Number 2021
EE1
P.A. No. 2021
<PAGE> 22
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
relating to
BOEING MODEL 747-400F AIRCRAFT
1. ENGINE ESCALATION.
(a) The Aircraft Basic Price of each Aircraft set forth in Table 1 of the
Purchase Agreement includes an aggregate price for CF6-80C2 engines and all
accessories, equipment and parts provided by the engine manufacturer. The
adjustment in Engine price applicable to each Aircraft (Engine Price Adjustment)
will be determined at the time of Aircraft delivery in accordance with the
following formula:
P(e) = (P(b) x CPI ) - P(b)
Base Year Index (CPI), as set forth in Table 1
of the Purchase Agreement
(b) The following definitions will apply herein:
P(e) = Engine Price Adjustment
P(b) = Engine Base Price (per Aircraft), as set forth in Table
1 of the Purchase Agreement.
CPI is the Composite Price Index, a value determined using the Bureau
of Labor Statistics, U.S. Department of Labor actual data in
accordance with the formula below. The Index values utilized in the
formula will be the numbers shown in the actual data for the ninth
month prior to the month of scheduled Aircraft delivery or the ninth
month prior to the Base Year Dollars month set forth in Table 1.
CPI = L + C + M + E
L = The Labor Index will be equal to the quotient of the
value associated with the Aircraft Delivery Month
divided by the value associated with the Base Year
Dollar month in "Hourly Earnings of Aircraft Engines and
Engine Parts Production Workers" SIC 3724, multiplied
by 100 and then by 30%.
EE1-1
P.A. No. 2021
<PAGE> 23
C = The Industrial Commodities Index will be equal to 30%
of the Producer Price Index for "all commodities other
than Farm and Foods," Code 3-15 associated with the
scheduled Aircraft delivery month.
M = The Metals and Metal Products Index will be equal to
30% of the Producer Price Index for "Metals and Metal
Products," Code 10 associated with the scheduled
Aircraft delivery month.
E = The Fuel Index will be equal to 10% of the Producer
Price Index for "Fuel and Related Products and Power,"
Code 5 associated with the scheduled Aircraft delivery
month.
The Engine Price Adjustment will not be made if it would result in a decrease in
the Engine Base Price.
(c) The values of the Average Hourly Earnings and Producer Price Indices used
will be those published as of a date 30 days prior to the scheduled Aircraft
delivery to Customer. Such values will be considered final and no Engine Price
Adjustment will be made after Aircraft delivery for any subsequent changes in
published Index values.
(d) In the event the Engine price escalation provisions are made non-enforceable
or otherwise rendered null and void by any agency of the United States
Government, or if the U.S. Department of Labor, Bureau of Labor Statistics (i)
substantially revises the methodology (in contrast to benchmark adjustments or
other corrections of previously published data) or (ii) discontinues publication
of any of the data referred to above, General Electric Company (GE) agrees to
meet jointly with Boeing and Customer, (to the extent such parties may lawfully
do so,) to jointly select a substitute for the revised or discontinued data;
such substitute data to lead in application to the same adjustment result,
insofar as possible, as would have been achieved by continuing the use of the
original data as it may have fluctuated had it not been revised or discontinued.
If such Engine price escalation provisions, methodology or data publication are
subsequently reinstated, Boeing will make adjustments consistent with the
agreements defined in this Supplemental Exhibit EE1.
NOTE: The factor (CPI divided by the base year index) by which the Engine
Base Price is to be multiplied will be expressed as a decimal and
rounded to the nearest thousandth. Any rounding of a number, as
required under this Supplemental Exhibit EE1 with respect to
escalation of the Engine price, will be accomplished as follows: if
the first digit of the portion to be dropped from the number to be
rounded is five or greater, the preceding digit will be raised to
the next higher number.
EE1-2
P.A. No. 2021
<PAGE> 24
2. ENGINE WARRANTY AND PRODUCT SUPPORT PLAN.
Boeing has obtained from GE the right to extend to Customer the provisions of
GE's Warranty and Product Support Plan; subject, however, to Customer's
acceptance of the conditions set forth herein and in such Warranty and Product
Support Plan. Accordingly, Boeing hereby extends to Customer and Customer hereby
accepts the provisions of GE's Warranty and Product Support Plan hereinafter set
forth, and such Warranty and Product Support Plan shall apply to all CF6
turbofan engines including all Modules and Parts thereof (Engines) installed in
the Aircraft at the time of delivery or purchased from Boeing by Customer for
support of the Aircraft except that, if Customer and GE have executed a General
Terms Agreement, then the terms of that Agreement shall be substituted for and
supersede the below-stated provisions and such provisions shall be of no force
or effect and neither Boeing nor GE shall have any obligation arising therefrom.
In consideration for Boeing's extension of the GE Warranty and Product Support
Plan to Customer, Customer hereby releases and discharges Boeing from any and
all claims, obligations and liabilities whatsoever arising out of the purchase
or use of such CF6 turbofan engines and Customer hereby waives, releases and
renounces all its rights in all such claims, obligations and liabilities.
2.1. Title. GE warrants that at the date of delivery, GE has legal
title to and good and lawful right to sell its CF6 engine products and
furthermore warrants that such title is free and clear of all claims,
liens and encumbrances of any nature whatsoever.
2.2. Patents.
2.2.1. GE will handle all claims and defend any suit or
proceeding brought against Customer insofar as based on a
claim that any product or part furnished under this Agreement
constitutes an infringement of any patent of the United
States, and will pay all damages and costs awarded therein
against Customer. This paragraph will not apply to any product
or any part manufactured to Customer's design or to the
aircraft manufacturer's design. As to such product or part, GE
assumes no liability for patent infringement.
2.2.2. GE's liability hereunder is conditioned upon Customer
promptly notifying GE in writing and giving GE authority,
information and assistance (at GE's expense) for the defense
of any suit. In case said equipment or part is held in such
suit to constitute infringement and the use of said equipment
or part is enjoined, GE shall expeditiously, at its own
expense and at its option, either (1) procure for Customer the
rights to continue using said product or part; (2) replace the
same with satisfactory and noninfringing product or part; or
(3) modify the same so it becomes satisfactory and
noninfringing.
EE1-3
P.A. No. 2021
<PAGE> 25
The foregoing shall constitute the sole remedy of Customer
and the sole liability of GE for patent infringement.
2.2.3. The above provisions also apply to products which are
the same as those covered by this Agreement and are delivered
to Customer as part of the installed equipment on CF6 powered
Aircraft.
2.3. Initial Warranty. GE warrants that CF6 engine products will
conform to GE's applicable specifications and will be free from defects
in material and workmanship prior to Customer's initial use of such
products. The provisions of the GE CF6 Product Support Plan shall
apply.
2.4. Product Support Plan. GE warrants and extends to Customer the
provisions of GE's CF6 Product Support Plan in effect on the date of
the execution of this Purchase Agreement.
2.5. Warranty Pass On. GE will, upon the written request of Customer,
extend Warranty coverage to Engines, Modules and Parts sold by Customer
to another operator to the extent only, however, that such coverage
exists at the time of such sale and subject to the provisions of the
Warranty.
2.6. Limitations. THE PROVISIONS SET FORTH HEREIN ARE EXCLUSIVE AND ARE
IN LIEU OF ALL OTHER WARRANTIES WHETHER WRITTEN, ORAL OR IMPLIED. THERE
ARE NO IMPLIED WARRANTIES OF FITNESS OR MERCHANTABILITY. SAID
PROVISIONS SET FORTH THE MAXIMUM LIABILITY OF GE WITH RESPECT TO CLAIMS
OF ANY KIND, INCLUDING NEGLIGENCE, ARISING OUT OF MANUFACTURE, SALE,
POSSESSION, USE OR HANDLING OF THE PRODUCTS OR PARTS THEREOF OR
THEREFOR, AND IN NO EVENT SHALL GE'S LIABILITY TO CUSTOMER EXCEED THE
PURCHASE PRICE OF THE PRODUCT GIVING RISE TO CUSTOMER'S CLAIM OR
INCLUDE INCIDENTAL OR CONSEQUENTIAL DAMAGES.
EE1-4
P.A. No. 2021
<PAGE> 26
SERVICE LIFE POLICY COMPONENTS
between
THE BOEING COMPANY
and
ATLAS AIR, INC.
Supplemental Exhibit SLP1 to Purchase Agreement Number 2021
SLP1
P.A. No. 2021
<PAGE> 27
COVERED SERVICE LIFE COMPONENTS
relating to
BOEING MODEL 747 AIRCRAFT
This is the listing of Covered Components for the Aircraft which relate to Part
3, Boeing Service Life Policy of Exhibit C, Product Assurance Document to the
AGTA and is a part of Purchase Agreement No. 2021.
1. Wing.
(a) Upper and lower wing skins and stiffeners between the forward and
rear wing spars.
(b) Wing spar webs, chords, and stiffeners.
(c) Inspar wing ribs.
(d) Inspar splice plates and fittings.
(e) Engine strut support fittings attached directly to wing primary
structure.
(f) Wing to body structural attachments.
(g) Wing landing gear support structure.
(h) Wing center section lower beams, spanwise beams and floor beams
but not the seat tracks attached to the beams.
(i) Spoiler support beam.
(j) Support structure in the wing for spoilers and spoiler actuators,
for aileron hinges and reaction links; and for leading edge
devices and trailing edge flaps and winglet support fittings./
(k) Trailing edge flap tracks and carriages.
(l) Aileron, leading edge device and trailing edge flap internal,
fixed attachment and actuator support structure.
SLP1-1
P.A. No. 2021
<PAGE> 28
2. Body.
(a) External surface skins and doublers, longitudinal stiffeners,
longerons and circumferential rings and frames between the
forward pressure bulkhead and the vertical stabilizer rear spar
bulkhead and structural support and enclosure for the APU but
excluding all system components and related installation and
connecting devices, insulation, lining, and decorative panels and
related installation and connecting devices.
(b) Window and windshield structure, but excluding the windows and
windshields.
(c) Fixed attachment structure of the passenger doors, cargo doors
and emergency exits, excluding door mechanisms and movable hinge
components. Sills and frames around the body openings for the
passenger doors, cargo doors and emergency exists, excluding
scuff plates and pressure seals.
(d) Nose wheel well structure including the wheel well walls,
pressure deck, bulkheads, and landing gear beam support
structure.
(e) Wheel well structure for the wing and body gears including the
ceiling, bulkheads and gear support structure.
(f) Floor beams and support posts in the control cab, upper deck
accommodation area and passenger cabin area, but excluding seat
tracks.
(g) Forward and aft pressure bulkheads.
(h) Keel structure between the wing front spar bulkhead and the main
gear wheel well aft bulkhead, including splices.
(i) Tension ties aft of upper deck accommodation area.
(j) Wing front, and rear spar support bulkheads, and vertical and
horizontal stabilizer front and rear spar support bulkheads
including terminal fittings but excluding all system components
and related installation and connecting devices, insulation,
lining, and decorative panels and related installation and
connecting devices.
(k) Support structure in the body for the stabilizer pivot and
stabilizer screw.
SLP1-2
P.A. No. 2021
<PAGE> 29
3. Vertical Tail.
(a) Skins and stiffeners between the auxiliary and rear spars.
(b) Front, rear and auxiliary spar chords, webs and stiffeners and
attachment fittings between vertical stabilizer and body.
(c) Inspar ribs.
(d) Stabilizer to body attachment fittings and auxiliary spar link.
(e) Support structure in the vertical stabilizer for rudder hinges,
reaction links and actuator.
(f) Rudder internal, fixed attachment and actuator support structure.
(g) Rudder hinges and supporting ribs, excluding bearings.
4. Horizontal Stabilizer.
(a) Upper and lower skins and stiffeners between the auxiliary and
rear spars.
(b) Front, rear and auxiliary spar chords, webs and stiffeners.
(c) Inspar ribs.
(d) Stabilizer center section and fittings splicing to outboard
stabilizer including pivot and screw support structure.
(e) Support structure in the horizontal stabilizer for the elevator
hinges, reaction links and actuators.
(f) Elevator internal, fixed attachment and actuator support
structure.
5. Engine Strut.
(a) Strut external surface skin and doublers and stiffeners.
(b) Internal strut chords, frames and bulkheads.
(c) Strut to wing fittings and diagonal brace.
(d) Engine mount support fittings attached directly to strut
structure.
SLP1-3
P.A. No. 2021
<PAGE> 30
(e) For Aircraft equipped with General Electric or Pratt & Whitney
engines only, the engine-mounted support fittings.
6. Main Landing Gear (Wing Mounted).
(a) Outer cylinder.
(b) Inner cylinder.
(c) Truck beam.
(d) Axles.
(e) Walking beam and trunnion fork.
(f) Drag brace.
(g) Upper and lower side struts including spindles and universals.
(h) Orifice support.
7. Main Landing Gear (Body Mounted).
(a) Outer cylinder.
(b) Inner cylinder.
(c) Truck beam.
(d) Axles.
(e) Upper and lower drag struts including spindles and universals.
(f) Side brace.
(g) Orifice support.
8. Nose Landing Gear.
(a) Outer cylinder.
(b) Inner cylinder.
(c) Orifice support tube.
SLP1-4
P.A. No. 2021
<PAGE> 31
(d) Upper and lower drag strut, including lock links.
(e) Side struts.
(f) Upper and lower tripod.
(g) Steering plates and steering collar.
(h) Torsion links.
(i) Axles.
NOTE: The Service Life Policy does not cover any bearings, bolts, bushings,
clamps, brackets, actuating mechanisms or latching mechanisms used in or
on the Covered Components.
SLP1-5
P.A. No. 2021
<PAGE> 32
2021-1
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Seller Purchased Equipment
Reference: Purchase Agreement No. 2021 (the Purchase Agreement) between The
Boeing Company (Boeing) and Atlas Air, Inc. (Customer) relating to
Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
Definition of Terms:
Seller Purchased Equipment (SPE): Buyer Furnished Equipment (BFE) that Boeing
purchases for Customer.
Developmental Buyer Furnished Equipment (DBFE): BFE not previously certified for
installation on the same model aircraft.
Developmental Seller Purchased Equipment (DSPE): DBFE which is converted to SPE.
This Letter Agreement does not include developmental avionics. Developmental
avionics are avionics that have not been previously certified for installation
on the same model aircraft.
1. Price.
Advance Payments. An estimated SPE price will be included in the Advance
Payment Base Price for the purpose of establishing the advance payments for the
Aircraft. The estimated price of this SPE for the Aircraft is United States [ ]
expressed in 1995 dollars.
Aircraft Price. The Aircraft Price will be adjusted to reflect (i) the
actual costs charged Boeing by the SPE suppliers, (ii) a handling fee of [ ] of
such costs and (iii)
P.A. No. 2021
Seller Purchased Equipment
<PAGE> 33
2021-1
Page 2
transportation charges. If all DBFE, except for developmental avionics, is
converted to SPE, Boeing will waive the handling fee for all SPE.
2. Responsibilities.
2.1. Customer is responsible for:
(i) selecting the supplier on or before:
N/A (SFE) for galleys
June 6, 1997 for seats;
(ii) selecting a FAA certifiable part; and
(iii) providing to Boeing the SPE part specification/Customer
requirements.
2.2. Boeing is responsible for:
(i) placing and managing the purchase order with the supplier;
(ii) coordinating with the suppliers on technical issues;
(iii) ensuring that the delivered SPE complies with the part
specification;
(iv) obtaining certification of the Aircraft with the SPE installed;
and
(v) obtaining for Customer the supplier's standard warranty for the
SPE. SPE is deemed to be BFE for purposes of Part 2 of Exhibit
C, the Product Assurance Document.
3. Supplier Selection For SPE Galleys and Seats.
In addition to those responsibilities described above, for SPE galleys and
seats the following provisions apply with respect to Customer's selection of
suppliers:
Galley Requirements. Customer will provide Boeing the definitive galley
configuration requirements not later than June 6, 1997.
P.A. No. 2021
Seller Purchased Equipment
<PAGE> 34
2021-1
Page 3
Bidder's List. For information purposes, Boeing will submit to Customer a
bidder's list of existing suppliers of seats and galleys within 120 days of the
supplier selection date shown above.
Request for Quotation (RFQ). Approximately 90 days prior to the supplier
selection date, Boeing will issue its RFQ inviting potential bidders to submit
bids for the galleys and seats within 30 days of the selection date.
Recommended Bidders. Not later than 15 days prior to the supplier selection
date, Boeing will submit to Customer a list of recommended bidders from which to
choose a supplier for the galleys and seats. The recommendation is based on an
evaluation of the bids submitted using price, weight, warranty and schedule as
the criteria.
Supplier Selection. If Customer selects a seat or galley supplier that is
not on the Boeing recommended list, such seat or galley will become BFE and the
provisions of Exhibit A, Buyer Furnished Equipment Provisions Document, of the
AGTA will apply.
4. Changes.
After this Letter Agreement is signed, changes to SPE may only be made by
and between Boeing and the suppliers. Customer's contacts with SPE suppliers
relating to design (including selection of materials and colors), weights,
prices or schedules are for informational purposes only. If Customer wants any
changes made, requests must be made directly to Boeing for coordination with the
supplier.
5. Proprietary Rights.
Boeing's obligation to purchase SPE will not impose upon Boeing any
obligation to compensate Customer or any supplier for any proprietary rights
Customer may have in the design of the SPE.
6. Remedies.
If Customer does not comply with the obligations above, Boeing may:
(i) delay delivery of the Aircraft;
(ii) deliver the Aircraft without installing the SPE;
P.A. No. 2021
Seller Purchased Equipment
<PAGE> 35
2021-1
Page 4
(iii) substitute a comparable part and invoice Customer for the cost;
(iv) increase the Aircraft Price by the amount of Boeing's additional
costs attributable to such noncompliance.
7. Customer's Indemnification of Boeing.
Except as provided in Article 8.1.1 of AGTA-TLS, Customer will indemnify
and hold harmless Boeing from and against all claims and liabilities, including
costs and expenses (including attorneys' fees) incident thereto or incident to
successfully establishing the right to indemnification, for injury to or death
of any person or persons, including employees of Customer but not employees of
Boeing, or for loss of or damage to any property, including Aircraft (but not
the Aircraft before delivery), arising out of or in any way connected with any
nonconformance or defect in any SPE and whether or not arising in tort or
occasioned in whole or in part by the negligence of Boeing. This indemnity will
not apply with respect to any nonconformance or defect caused solely by Boeing's
installation of the SPE.
P.A. No. 2021
Seller Purchased Equipment
<PAGE> 36
2021-1
Page 5
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
----------------------------
Its Attorney-In-Fact
----------------------------
ACCEPTED AND AGREED TO this
Date: June 6 , 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
----------------------------
Its CEO
----------------------------
P.A. No. 2021
Seller Purchased Equipment
<PAGE> 37
2021-2
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Option Aircraft
Reference: Purchase Agreement No. 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends the Purchase Agreement. All terms used but not
defined in this Letter Agreement have the same meaning as in the Purchase
Agreement. Boeing agrees to manufacture and sell to Customer additional Model
747-400F aircraft as Option Aircraft. The delivery months, number of aircraft,
Advance Payment Base Price per aircraft, advance payment schedule, and option
exercise dates are listed in the Attachment to this Letter Agreement.
1. Aircraft Description and Changes
1.1. Aircraft Description: The Option Aircraft are described by the Detail
Specification listed in the Attachment.
1.2. Changes: The Detail Specification will be revised to include:
(i) Changes applicable to the basic Model 747-400F aircraft which
are developed by Boeing between the date of the Detail
Specification and the signing of the definitive agreement to
purchase the Option Aircraft;
(ii) Changes required to obtain required regulatory certificates; and
(iii) Changes mutually agreed upon.
2. Price
2.1. The pricing elements of the Option Aircraft are listed in the
Attachment.
2.2. Price Adjustments.
P.A. No. 2021
Option Aircraft
<PAGE> 38
2021-2
Page 2
2.2.1. Optional Features. The price for Optional Features selected for the
Option Aircraft will be adjusted to Boeing's current prices as of the date of
execution of the definitive agreement for the Option Aircraft.
2.2.2. Escalation Adjustments. The Airframe Price and the price of Optional
Features for Option Aircraft delivering before January, 2003, will be escalated
on the same basis as the Aircraft.
The engine manufacturer's current escalation provisions, listed in Exhibit
Supplement EE1 have been estimated to the months of scheduled delivery using
commercial forecasts to calculate the Advance Payment Base Price listed in the
Attachment to this Letter Agreement. The engine escalation provisions will be
revised if they are changed by the engine manufacturer prior to the signing of a
definitive agreement for the Option Aircraft.
2.2.3. Base Price Adjustments. The Airframe Price and the Engine Price of
the Option Aircraft delivering before [ ], will be adjusted using current
commercial forecasts as of the date of signing of the definitive agreement for
the Option Aircraft.
2.2.4. Prices for Long Lead Time Aircraft. Boeing and the engine
manufacturer have not established prices and escalation provisions for Model
747-400F aircraft and engines for delivery in the year [ ] and after. When
prices and the pricing bases are established for the Model 747-400F aircraft
delivering in the year [ ] and after, the information listed in the Attachment
will be appropriately amended.
3. Payment.
3.1. Customer will pay a deposit to Boeing in the amount shown in the
Attachment for each Option Aircraft (Deposit), on the date of this Letter
Agreement. If Customer exercises an option, the Deposit will be credited against
the first advance payment due. If Customer does not exercise an option, Boeing
will retain the Deposit for that Option Aircraft.
3.2. Following option exercise, advance payments in the amounts and at the
times listed in the Attachment will be payable for the Option Aircraft. The
remainder of the Aircraft Price for the Option Aircraft will be paid at the time
of delivery.
P.A. No. 2021
Option Aircraft
<PAGE> 39
2021-2
Page 3
4. Option Exercise.
4.1. Customer may exercise an option by giving written notice to Boeing on
or before the option exercise dates listed in the Attachment (Option Exercise
Date).
4.2. If Boeing must make production decisions which are dependent on
Customer exercising an option earlier than the Option Exercise Date, Boeing may
accelerate the Option Exercise Date subject to Customer's agreement. If Boeing
and Customer fail to agree to a revised Option Exercise Date, either party may
terminate the option and Boeing will refund to Customer, without interest, any
Deposit and advance payments received by Boeing with respect to the terminated
Aircraft.
P.A. No. 2021
Option Aircraft
<PAGE> 40
2021-2
Page 4
5. Contract Terms.
Boeing and Customer will use their best efforts to reach a definitive agreement
for the purchase of an Option Aircraft, including the terms and conditions
contained in this Letter Agreement, in the Purchase Agreement, and other terms
and conditions as may be agreed upon. In the event the parties have not entered
into a definitive agreement within 30 days following option exercise, either
party may terminate the purchase of such Option Aircraft by giving written
notice to the other within 5 days.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
-----------------------------
Its Attorney-In-Fact
-----------------------------
ACCEPTED AND AGREED TO this
Date: June 6, 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
-----------------------------
Its CEO
-----------------------------
Attachment
P.A. No. 2021
Option Aircraft
<PAGE> 41
<TABLE>
<CAPTION>
Attachment 1GE to
Letter Agreement 2021-2
Aircraft Delivery, Description, Price and Advance Payments
<S> <C> <C> <C> <C>
Airframe Model/MTGW: 747-400F 850,000 Detail Specification: D019U002(5/7/97)
Engine Model/Thrust Level: CF6-80C2BIF 57,900 Price Base Year: Jul-95
Airframe Base Price: [ ]
Optional Features: [ ] Airframe Escalation Data:
-------- ------------------------
Sub-Total of Airframe and Features: [ ] Base Year Index (ECI): 130.10
Engine Price (Per Aircraft): [ ] Base Year Index (ICI): 123.60
Buyer Furnished Equipment (BFE) Estimate [ ]
Seller Purchased Equipment (SPE) Estimate: [ ] Engine Escalation Data:
Aircraft Basic Price (Excluding BFE/SPE): [ ] Base Year Index (CPI): 129.660
Refundable Deposit per A/C at Proposal Acceptance: [ ]
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Advamce Payment Per Aircraft
- ------------------------------------------------------------------------------------------------------------------------------------
Escalation Escalation Escalation Escalation Estimate (Amts. Due/Mos. Prior to Delivery):
- ------------------------------------------------------------------------------------------------------------------------------------
Delivery Number of Factor Factor Credit Adv Payment Base At Signing 24 Mos. 21/18/15/12/9/6 Total
- ------------------------------------------------------------------------------------------------------------------------------------
Mos.
- ------------------------------------------------------------------------------------------------------------------------------------
Date Aircraft (Airframe) (Engine) Memorandum Price Per A/P 1% 4% 5% 35%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jul-99 1 1.1029 1.08 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Aug-99 1 1.108 1.084 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Sep-99 1 1.1126 1.087 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
May-00 1 1.1505 1.096 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Jul-00 1 1.1587 1.103 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Mar-01 1 1.1848 1.119 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
May-01 1 1.1912 1.122 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Jul-01 1 1.1954 1.134 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Aug-01 1 1.1956 1.137 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Mar-02 1 1.1986 1.15 [ ] [ ] [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 42
Attachment 1GE to
Letter Agreement 2021-2
Aircraft Delivery, Description, Price and Advance Payments
<TABLE>
<CAPTION>
Delivery Option Exercise
Date Due on or
Before the
Following Date
- -------------
<S> <C>
July-99 [ ]
- -------------
Aug-99 [ ]
- -------------
Sep-99 [ ]
- -------------
May-00 [ ]
- -------------
Jul-00 [ ]
- -------------
Mar-01 [ ]
- -------------
May-01 [ ]
- -------------
Jul-01 [ ]
- -------------
Aug-01 [ ]
- -------------
Mar-02 [ ]
- -------------
</TABLE>
Page 2
<PAGE> 43
2021-3
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Escalation Sharing
Reference: Purchase Agreement No. 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
1. Commitment.
Boeing agrees to share one-half of the escalation, up to a maximum of 3
percent per year, in each of the years 1997 and 1998 according to the terms in
paragraph 2 below. This applies to any of Customer's aircraft which are
scheduled to deliver after December 31, 1996. For the purpose of this Letter
Agreement such aircraft are referred to as "Eligible Aircraft."
All escalation calculations under this Letter Agreement will be made in
accordance with Exhibit D to the AGTA between Boeing and Customer, using actual
escalation indices published for the applicable period.
2. Escalation Credit Memo.
2.1. Calculation - Eligible Aircraft Delivering in 1997.
At the time of delivery of each Eligible Aircraft delivering in 1997,
Boeing will issue to Customer a credit memorandum (the 1997 Credit Memorandum)
which will be applied to the Aircraft Price of such Eligible Aircraft. The 1997
Credit Memorandum is calculated as follows:
P.A. No. 2021
Escalation Sharing
<PAGE> 44
2021-3
Page 2
One-half of the difference between the airframe and special features
escalation calculated for a December 1996 aircraft delivery position, and
the escalation calculated for the month of delivery of the 1997 Eligible
Aircraft; provided however,
The maximum amount of the 1997 Credit Memorandum does not exceed 3 percent
pursuant to the following calculation:
At the time of the delivery of the 1997 Eligible Aircraft, the Base
Airframe Price and Special Features prices will be escalated to a December
1996 delivery month. The December 1996 escalated price will be referred to
in the following formula as the "December 1996 Index Amount". The 1997
Credit Memorandum for the 1997 Eligible Aircraft will not exceed an amount
equal to:
the December 1996 Index Amount times 0.03
2.2. Calculation - Eligible Aircraft Delivering in 1998.
At the time of delivery of each Eligible Aircraft delivering in 1998,
Boeing will issue to Customer a credit memorandum (the 1998 Credit Memorandum)
which shall be applied to the Aircraft Price of such Eligible Aircraft. The 1998
Credit Memorandum shall be calculated as follows:
(i) One-half of the difference between the airframe and special
features escalation calculated for a December 1997 aircraft delivery position,
and the escalation calculated for the month of delivery of the 1998 Eligible
Aircraft;
provided however,
The maximum amount of the 1998 Credit Memorandum shall not exceed 3 percent
pursuant to the following calculation:
At the time of the delivery of the 1998 Eligible Aircraft, the Base
Airframe Price and Special Features prices will be escalated to a
December 1997 delivery month. The December 1997 escalated price will
be referred to in the following formula as the "December 1997 Index
Amount." The 1998 Credit Memorandum for the 1998 Eligible Aircraft
will not exceed an amount equal to:
the December 1997 Index Amount times 0.03;
P.A. No. 2021
Escalation Sharing
<PAGE> 45
2021-3
Page 3
and,
(ii) The amount calculated above in paragraph 2.1 for the 1997
Credit Memorandum calculated through December, 1997.
2.3. Eligible Aircraft Delivering after 1998.
For Eligible Aircraft delivering after the calendar year 1998, the
amount of the Credit Memorandum will be the amount calculated pursuant to
paragraph 2.2 above through December 1998. This credit memorandum amount will
be escalated from December 1998 to the month of delivery.
2.4. Advance Payment Base Price.
It is agreed that the Advance Payment Base Prices for the Eligible Aircraft
set forth in the Purchase Agreement include an estimate for the escalation
sharing Credit Memorandum pursuant to this Letter Agreement.
3. Escalating Credits (STE).
It is agreed that the credit memoranda specified in Letter Agreement No.
6-1162-DSF-083 which is expressed as a percentage of the escalated Aircraft
Price of the Eligible Aircraft, will be calculated using the same factors used
to develop the adjusted airframe escalation pursuant to this Letter Agreement.
P.A. No. 2021
Escalation Sharing
<PAGE> 46
2021-3
Page 4
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
--------------------------
Its Attorney-In-Fact
--------------------------
ACCEPTED AND AGREED TO this
Date: June 6 , 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
--------------------------
Its CEO
--------------------------
Attachment
P.A. No. 2021
Escalation Sharing
<PAGE> 47
2021-4
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Demonstration Flights
Reference: Purchase Agreement No. 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement shall have the same meaning as in
the Purchase Agreement.
Definition of Terms:
Correction Costs: Customer's direct labor costs and the cost of any material
required to correct a Flight Discrepancy where direct labor costs are equal to
the warranty labor rate in effect between the parties at the time such labor is
expended.
Flight Discrepancy: A failure or malfunction of an Aircraft, or the accessories,
equipment or parts installed on the Aircraft which results from a defect in the
Aircraft, Boeing Product, engine or Supplier Product or a nonconformance to the
Detail Specification for the Aircraft.
The AGTA provides that each aircraft will be test flown prior to delivery for
the purpose of demonstrating the functioning of such Aircraft and its equipment
to Customer; however, Customer may elect to waive this test flight. For each
test flight waived, Boeing agrees to provide Customer an amount of jet fuel at
delivery that, in addition to the standard fuel entitlement, totals the
following amount of fuel:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Aircraft Model Total Fuel Entitlement
(U.S. Gallons)
- -------------------------------------------------------------------------
<S> <C>
737 Full tank
- -------------------------------------------------------------------------
747 22,000
- -------------------------------------------------------------------------
757 8,000
- -------------------------------------------------------------------------
767 9,000
- -------------------------------------------------------------------------
777 14,000
- -------------------------------------------------------------------------
</TABLE>
P.A. No. 2021
Demo Flight Waiver
<PAGE> 48
2021-4
Page 2
Further, Boeing agrees to reimburse Customer for any Correction Costs incurred
as a result of the discovery of a Flight Discrepancy during the first flight of
the aircraft by Customer following delivery to the extent such Correction Costs
are not covered under a warranty provided by Boeing, the engine manufacturer or
any of Boeing's suppliers.
Should a Flight Discrepancy be detected by Customer which requires the return of
the Aircraft to Boeing's facilities at Seattle, Washington, so that Boeing may
correct such Flight Discrepancy, Boeing and Customer agree that title to and
risk of loss of such Aircraft will remain with Customer. In addition, it is
agreed that Boeing will have responsibility for the Aircraft while it is on the
ground at Boeing's facilities in Seattle, Washington, as is chargeable by law to
a bailee for mutual benefit, but Boeing shall not be chargeable for loss of use.
To be reimbursed for Correction Costs, Customer shall submit a written itemized
statement describing any flight discrepancies and indicating the Correction Cost
incurred by Customer for each discrepancy. This request must be submitted to
Boeing's Contracts Regional Director at Renton, Washington, within ninety (90)
days after the first flight by Customer.
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Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
-------------------------
Its Attorney-In-Fact
-------------------------
ACCEPTED AND AGREED TO this
Date: June 6 , 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
--------------------------
Its CEO
--------------------------
Attachment
P.A. No. 2021
Demo Flight Waiver
<PAGE> 50
2021-5
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Spares Initial Provisioning
Reference: Purchase Agreement 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends the Purchase Agreement. All terms used but not
defined in this Letter Agreement have the same meaning as in the Purchase
Agreement.
1. Applicability.
This letter will apply to initial provisioning for the Model 747-400F Aircraft
covered by the Purchase Agreement.
2. Initial Provisioning Meeting.
Boeing will conduct an initial provisioning meeting (Initial
Provisioning Meeting) with Customer to establish mutually agreeable procedures
to accomplish Customer's initial provisioning of spare parts for the Aircraft.
The parties will agree, during the Initial Provisioning Meeting on the
operational data to be provided by Customer for Boeing's use in preparing its
quantity recommendations for initial provisioning of spare parts for the
Aircraft, exclusive of special tools, ground support equipment, engines and
engine parts (Provisioning Items). Such operational data to be provided by
Customer will be the data described in Section E of Boeing Manual D6-49090,
entitled "Initial Provisioning Implementation Manual, Boeing Model 757, 767,
777, 747-400 and 737-300, -400 and -500" (Boeing Initial Provisioning
Implementation Manual) which will be furnished to Customer prior to the Initial
Provisioning Meeting. The parties will also agree on the provisioning
documentation to be provided by Boeing. Such data will be essentially in
accordance with the provisions of Chapter 1 of ATA International Specification
2000, Revision 1, dated April 20, 1989, as described in Boeing Initial
Provisioning Implementation Manual
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D6-49090 (Provisioning Data). Boeing will provide instruction in the use of the
initial provisioning documentation. This instruction will be provided in
conjunction with the Initial Provisioning Meeting. In addition, the parties will
discuss spares ordering procedures and other matters related to the provisioning
for the Aircraft. The time and location for such Initial Provisioning Meeting
will be mutually agreed upon between the parties; however, Boeing and Customer
will use their best efforts to convene such meeting within 30 days after
execution of the Purchase Agreement.
3. Initial Provisioning Documentation.
3.1. Provisioning Data. Boeing will furnish Provisioning Data to
Customer on or about July 1, 1997. The Provisioning Data will be as complete as
possible and will cover Provisioning Items selected by Boeing for review by
Customer for initial provisioning for the Aircraft. The Provisioning Data will
set forth the prices for Provisioning Items which are Boeing Spare Parts (spare
parts that are manufactured by Boeing or pursuant to Boeing detailed design with
Boeing authorization) and such prices will be firm and remain in effect until
the date or dates set forth in Paragraph 4.1 below, by which orders must be
placed with Boeing. Boeing will, from time to time, until a date approximately
90 days following delivery of the last Aircraft or until the delivery
configuration of each of the Aircraft is reflected in the Provisioning Data,
whichever is later, furnish to Customer revisions to the Provisioning Data.
3.2. Provisioning IPC. Boeing will, on or about July 1, 1997, furnish
to Buyer a Boeing Illustrated Parts Catalog (IPC), (Provisioning IPC). The
Provisioning IPC will be as complete as possible and will cover Provisioning
Items selected by Boeing for review by Customer for initial provisioning for the
Aircraft. Boeing will, from time to time, until a date approximately 90 days
following delivery of the last Aircraft, or until the delivery configuration of
each of the Aircraft is reflected in the Provisioning IPC, whichever is later,
furnish to Customer revisions to the Provisioning IPC.
3.3. Buyer Furnished Equipment (BFE) Provisioning Data.
3.3.1. Boeing's Responsibility. Boeing will include BFE end
items in the Provisioning Data and Provisioning IPC for BFE installed on the
Aircraft provided such equipment has been installed by Boeing on other Boeing
aircraft of the same model and Boeing has sufficient data on the BFE.
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3.3.2. Customer's Responsibility. Customer will be responsible
for ensuring BFE data is provided to Boeing by the BFE supplier in a format
acceptable to Boeing for BFE not covered by 3.3.1 above. If the data is not
provided to Boeing in a timely manner and in a format acceptable to Boeing, such
BFE equipment will not be included in Boeing's Provisioning Data or IPC.
3.4. Other Data. Boeing will submit to Customer listings of Raw
Materials, Standard Parts and Bulk Materials to be used by Customer in the
maintenance and repair of the Aircraft.
4. Purchase from Boeing of Spare Parts as Initial Provisioning for the
Aircraft.
4.1. Boeing Spare Parts. Customer will place orders for Provisioning
Items by September 1, 1997; provided, however, that in those instances where
Boeing submits any revision to the Provisioning Data, Customer will place orders
for Boeing Spare Parts covered by such revision within 60 days following the
date of such submittal. At Customer's request, Boeing will process "controlled
shipments" by shipping full or partial quantities of an order on a schedule
specified by Customer, provided the final shipment is made no later han 24
months after receipt of the order.
4.2. Vendor Provisioning Items. Customer may place orders with Boeing
for Provisioning Items which are manufactured by vendors or to their detailed
design and are covered by the Provisioning Data as initial provisioning for the
Aircraft. The price to Customer for any such vendor Provisioning Item will be
112% of the vendor's quoted price to Boeing therefor. If Customer elects to
purchase such vendor Provisioning Items from Boeing, Customer will place its
orders therefor in accordance with the provisions of Paragraph 4.1 above.
4.3. Ground Support Equipment and Special Tools. Customer may place
orders with Boeing for ground support equipment (GSE) and special tools
manufactured by vendors which Customer determines it will initially require for
maintenance, overhaul and servicing of the Aircraft and/or engines. The price to
Customer for such GSE or special tools will be one hundred twelve percent (112%)
of the vendor's quoted price to Boeing therefor. If Customer elects to purchase
such GSE and special tools from Boeing, Customer will place its orders therefor
by the date set forth in Paragraph 4.1 above, or such later date as the parties
may mutually agree.
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4.4. Spare Engines and Engine Spare Parts. Customer may place orders
with Boeing for spare engines and/or engine spare parts which Customer
determines it will initially require for support of the Aircraft or for
maintenance and overhaul of the engines. The price to Customer for such spare
engines or such engine spare parts, will be 105% of the engine manufacturer's
quoted price to Boeing for the engine, and 112% of the engine manufacturer's
quoted price to Boeing for the engine spare parts. If Customer elects to
purchase such spare engines or engine spare parts through Boeing, Customer will
place its orders on a date to be mutually agreed upon during the Initial
Provisioning Meeting.
4.5. QEC Kits. Boeing will, on or about May 1, 1997, furnish to
Customer a listing of all components which could be included in the Quick Engine
Change (QEC) kits which may be purchased by Customer from Boeing. Customer
agrees to review such listing and indicate by marking on one copy of such
listing those components that Customer desires included in its QEC kits.
Customer will return such marked copy to Boeing within 30 days after Customer's
receipt of such listing. Within 30 days after Boeing's receipt of such marked
copy, Boeing will republish such listing to reflect only those components
selected by Customer and will provide copies of such republished listing to
Customer. Boeing will from time to time furnish revisions to such republished
listing until a date approximately 90 days after delivery of the last QEC kit
ordered by Customer for the Aircraft. Boeing will furnish to Customer as soon as
practicable a statement setting forth a firm price for the QEC kit configuration
selected by Customer. Customer agrees to place orders with Boeing for the QEC
kits for the Aircraft by July 1, 1997.
4.6. Terms and Conditions. Applicable terms and conditions of the
Customer Services General Terms Agreement between Boeing and Customer, if
executed, or the standard terms and conditions on a Spares Customer Account
Terms and Conditions form will be applicable to Provisioning Items ordered by
Customer from Boeing for the Aircraft.
5. Delivery.
Boeing will, insofar as reasonably possible, deliver to Customer the
Spare Parts ordered by Customer in accordance with the provisions of this letter
on dates reasonably calculated to conform to Customer's anticipated needs in
view of the scheduled deliveries of the Aircraft. Customer and Boeing will agree
upon the date to begin delivery of the Provisioning Spare Parts ordered in
accordance with this letter. Where appropriate, Boeing will arrange for shipment
of such Spare Parts, which are manufactured by vendors, directly to Customer
from the applicable vendor's facility. The routing and method of shipment for
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initial deliveries and all subsequent deliveries of such Spare Parts will be as
mutually agreed between Boeing and Customer.
6. Substitution for Obsolete Spare Parts.
6.1. Obligation to Substitute. In the event that, prior to delivery of
the first Aircraft pursuant to the Purchase Agreement, any Spare Part purchased
by Customer from Boeing in accordance with this letter is rendered obsolete or
unusable due to the redesign of the Aircraft or of any accessory, equipment or
part therefor, (other than a redesign at Customer's request), Boeing will
deliver to Customer new and usable Spare Parts in substitution for such obsolete
or unusable Spare Parts and Customer will return the obsolete or unusable Spare
Parts to Boeing. Boeing will credit Customer's account with Boeing with the
price paid by Customer for any such obsolete or unusable Spare Part and will
invoice Customer for the purchase price of any such substitute Spare Part
delivered to Customer.
6.2. Delivery of Obsolete Spare Parts and Substitutes Therefor.
Obsolete or unusable Spare Parts returned by Customer pursuant to Paragraph 6
will be delivered to Boeing at its Seattle Distribution Center, or such other
destination as Boeing may reasonably designate. Spare Parts substituted for such
returned obsolete or unusable Spare Parts will be delivered to Customer at
Boeing's Seattle Distribution Center, or such other Boeing shipping point as
Boeing may reasonably designate. Boeing will pay the freight charges for
shipment from Customer to Boeing of any such obsolete or unusable Spare Part and
for shipment from Boeing to Customer of any such substitute Spare Part.
7. Repurchase of Provisioning Items.
7.1. Obligation to Repurchase. During a period commencing 1 year after
delivery of the first Aircraft under the Purchase Agreement, and ending 5 years
after such delivery, Boeing will, upon receipt of Customer's written request and
subject to the exceptions in Paragraph 7.2 below, repurchase unused and
undamaged Provisioning Items which (i) were recommended by Boeing in the
Provisioning Data as initial provisioning for the Aircraft, (ii) were purchased
by Customer from Boeing, and (iii) are surplus to Customer's needs.
7.2. Exceptions. Boeing will not be obligated under Paragraph 7.1
above, to repurchase any of the following: (i) quantities of Provisioning Items
in excess of those quantities recommended by Boeing in the Provisioning Data for
the Aircraft, (ii) QEC Kits, Bulk Material Kits, Raw Material Kits, Service
Bulletin Kits, Standards Kits and compo-
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nents thereof (except those components listed separately in the Provisioning
Data), (iii) Provisioning Items for which an Order was received by Boeing more
than 5 months after delivery of the last Aircraft, (iv) Provisioning Items which
have become obsolete or have been replaced by other Provisioning Items as a
result of (a) Customer's modification of the Aircraft or (b) design improvements
by Boeing or the vendor (other than Provisioning Items which have become
obsolete because of a defect in design if such defect has not been remedied by
an offer by Boeing or the vendor to provide no charge retrofit kits or
replacement parts which correct such defect), and (v) Provisioning Items which
become excess as a result of a change in Customer's operating parameters,
provided to Boeing pursuant to the Initial Provisioning meeting in Paragraph 2,
which were the basis of Boeing's initial provisioning recommendations for the
Aircraft.
7.3. Notification and Format. Customer will notify Boeing, in writing,
when Customer desires to return Provisioning Items which Customer's review
indicates are eligible for repurchase by Boeing under the provisions of this
Paragraph 7. Customer's notification will include a detailed summary, in part
number sequence, of the Provisioning Items Customer desires to return. Such
summary will be in the form of listings, tapes, diskettes or other media as may
be mutually agreed between Boeing and Customer, and will include part number,
nomenclature, purchase order number, purchase order date and quantity to be
returned. Within 5 business days after receipt of Customer's notification,
Boeing will advise Customer, in writing, when Boeing's review of such summary
will be completed.
7.4. Review and Acceptance by Boeing. Upon completion of Boeing's
review of any detailed summary submitted by Customer pursuant to Paragraph 7.3,
Boeing will issue to Customer a Material Return Authorization (MRA) for those
Provisioning Items Boeing agrees are eligible for repurchase in accordance with
this Paragraph 7. Boeing will advise Customer of the reason that any Spare Part
included in Customer's detailed summary is not eligible for return. Boeing's MRA
will state the date by which Provisioning Items listed in the MRA must be
redelivered to Boeing and Customer will arrange for shipment of such
Provisioning Items accordingly.
7.5. Price and Payment. The price of each Provisioning Item repurchased
by Boeing pursuant to this Paragraph 7 will be an amount equal to 100% of the
original invoice price thereof. In the case of Provisioning Items manufactured
by a vendor which were purchased pursuant to Paragraph 4, the repurchase price
will not include Boeing's 12% handling charge. Boeing will pay the repurchase
price by issuing a credit memorandum in favor of Customer which may be applied
against amounts due Boeing for the purchase of aircraft, Spare Parts, services
or the licensing of data.
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7.6. Delivery of Provisioning Items. Provisioning Items repurchased by
Boeing pursuant to this Paragraph 7 will be delivered to Boeing F.O.B. its
Seattle Distribution Center, or such other destination as Boeing may reasonably
designate. Customer will pay the freight charges for the shipment from Customer
to Boeing of any such Provisioning Items.
8. Obsolete Spare Parts and Surplus Provisioning Items - Title and Risk
of Loss.
Title to and risk of loss of any obsolete or unusable Spare Parts
returned to Boeing pursuant to Paragraph 6, will pass to Boeing upon delivery
thereof to Boeing. Title to and risk of loss of any Spare Part substituted for
an obsolete or unusable Spare Part pursuant to Paragraph 6, will pass to
Customer upon delivery thereof to Customer. Title to and risk of loss of any
Provisioning Item repurchased by Boeing pursuant to Paragraph 7, will pass to
Boeing upon delivery thereof to Boeing. With respect to the obsolete or unusable
Spare Parts which may be returned to Boeing and the Spare Parts substituted
therefor, pursuant to Paragraph 6, and the Provisioning Items which may be
repurchased by Boeing, pursuant to Paragraph 7, the party which has risk of loss
of any such Spare Part or Provisioning Item will have the responsibility of
providing any insurance coverage for it desired by such party.
9. Termination of Purchase Agreement for Excusable Delay.
In the event of termination of the Purchase Agreement with respect to
any Aircraft pursuant to Article 7.6 of The Aircraft General Terms Agreement
AGTA-TLS (AGTA-TLS) between Boeing and Customer such termination will, if
Customer so requests by written notice received by Boeing within 15 days after
such termination, also discharge and terminate all obligations and liabilities
of the parties as to any Spare Parts which Customer
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had ordered pursuant to the Provisions of this letter as initial provisioning
for such Aircraft and which are undelivered on the date Boeing receives such
written notice.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
--------------------------
Its Attorney-In-Fact
--------------------------
ACCEPTED AND AGREED TO this
Date: June 6, 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
--------------------------
Its CEO
--------------------------
P.A. No. 2021
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<PAGE> 58
2021-6
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Multiple Aircraft Operating Weights
Reference: Purchase Agreement No. 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
In this Letter Agreement, the term "Aircraft" means all Model 747-400F aircraft
that Customer legally owns or directly manages, whether purchased by Customer
under the Purchase Agreement or otherwise. It does not include any aircraft
which Customer may have obtained through an operating lease.
1. Operation at Multiple Gross Weights.
Customer has requested and Boeing agrees to provide the required documentation
to allow the operation of the Aircraft at alternate Maximum Take-Off Weights
(MTOW). Boeing will provide an FAA approved Airplane Flight Manual such that
each Aircraft will include a basic MTOW of 850,000 pounds and two alternate MTOW
of 875,000 pounds and 800,000 pounds in appendices to the Airplane Flight
Manual. Customer may operate the Aircraft at the weights provided at Customer's
sole discretion as long as the annual average operational weight of the
Customer's fleet does not exceed 850,000 pounds. It will be the responsibility
of Customer to obtain concurrence of the cognizant aviation authority to use the
Airplane Flight Manual and its appendices.
2. Payment Amounts.
Customer will pay to Boeing the amount of $[ ] ([ ]$ U.S. Subject to Escalation)
per Aircraft for this capability upon the delivery by Boeing of the Airplane
Flight Manual appendices described above. The weights and price shown above were
derived using the methods illustrated in Attachment A.
P.A. No. 2021
<PAGE> 59
Atlas Air, Inc.
Letter Agreement 2021-6
Page 2
3. Annual MTOW Use Report.
One year after the signing date of this Letter Agreement, and thereafter on an
annual basis, Customer will furnish to Boeing a MTOW Use Report signed by an
officer of Customer which reports the actual operating weights of the Aircraft
affected by this Letter Agreement in the previous year. If the actual
operational average gross weight utilization is greater than the average gross
weight purchased under this Letter Agreement, Customer will pay Boeing's then
current price per pound of difference above the average gross weight utilization
projected for the year for each Aircraft. If the actual operational average
gross weight utilization is less than the average gross weight projected under
this Letter Agreement or the MTOW Use Reports, no monetary credit will be given
to Customer for the difference.
4. Sale or Lease of Aircraft by Customer.
Concurrent with Customer's written notification to Boeing of its intent
to sell or lease one or more of its Aircraft (Disposed Aircraft) to a third
party (other than a subsidiary or affiliate of Customer,) Customer will elect
one of the following options with respect to each of the Disposed Aircraft:
4.1. Upon request Boeing will, at no charge to Customer, provide
documentation to limit a Disposed Aircraft's certified MTOW to the one certified
MTOW which will be the average gross weight value applicable as of the date of
Customer's request; or
4.2. If Customer desires to sell or lease a Disposed Aircraft certified
to operate at a higher MTOW than that specified in Paragraph 4.1, then Customer
may purchase, at Boeing's then current price for MTOW, the difference in pounds
between the average gross weight value applicable as of the date of Customer's
request and the MTOW desired, for a Disposed Aircraft; or
P.A. No. 2021
<PAGE> 60
Atlas Air, Inc.
Letter Agreement 2021-6
Page 3
4.3. If Customer desires to sell or lease a Disposed Aircraft certified
to operate at a lower MTOW than that specified in Paragraph 4.1, then Boeing
will, without charge or credit, provide documentation to limit a Disposed
Aircraft's certified MTOW to such lower value.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
--------------------------
Its Attorney-In-Fact
--------------------------
ACCEPTED AND AGREED TO this
Date: June 6, 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
--------------------------
Its CEO
--------------------------
P.A. No. 2021
<PAGE> 61
Atlas Air, Inc.
Attachment A to Letter Agreement 2021-6
Page 1
Calculation Method for Average Gross Weight and Price per Aircraft
Customer has agreed to purchase an average gross weight based on expected use of
each Aircraft within Customer's specific minor model fleet. An average gross
weight utilization will be calculated and charged against every Aircraft in that
minor model fleet. The minimum gross weight for any individual Aircraft in the
average calculation shall be the basic gross weight.
The price per Aircraft for the average gross weight was calculated as follows:
PM = (NT * WA * PW) - (NE * WE * PW)
-----------------------------
NT
The following definitions apply:
PM = Purchase Price of Multiple Operating Weight per aircraft
NT = Total number of aircraft in Customer's fleet including the Aircraft
WA = Weighted Average minus the basic weight (in pounds) per minor model
fleet
PW = Boeing's current price per pound for MTOW increases
NE = Number of previously purchased minor model aircraft in
Customer's fleet
WE = Total gross weight (in pounds) in excess of basic gross weight
previously purchased for NE aircraft
Example Calculation of Average Gross Weight
Customer owns ten 757-200 aircraft currently at 230,000 pounds MTOW, each of
which had a basic gross weight of 220,000 pounds at initial purchase, and is
purchasing five additional 757-200's. Therefore, NT = 15
Step 1. Determine routes to be flown in the upcoming year for all 15 aircraft,
and determine the MTOW needed to support each planned route.
27% of routes require 220,000 pounds or less
50% of routes require 230,000 pounds
23% of routes require 240,000 pounds
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Atlas Air, Inc.
Attachment A to Letter Agreement 2021-6
Page 2
Step 2. Convert percentage of routes into Aircraft.
15 aircraft * 27% = 4.05 aircraft, round to 4
15 aircraft * 50% = 7.50 aircraft, round to 8
15 aircraft * 23% = 3.45 aircraft, round to 3
----- --
15 aircraft 15
Step 3. Calculate weighted average of the entire minor model fleet
4 * 220,000 = 880,000
7 * 230,000 = 1,840,000
3 * 240,000 = 720,000
----------
Total Weight 3,440,000 / 15 aircraft = 229,333 pounds,
or 9,333 pounds above base MTOW per aircraft.
WA = 9,333 pounds
Step 4. Multiply NT times WA times current Boeing price per pound (PW).
15 * 9,333 * $55.22(1995$) = $7,730,524
Step 5. Determine value of weight previously purchased for the existing fleet,
by multiplying 10 Aircraft (NE) times 10,000 pounds (WE) times PW.
10 * 10,000 * $55.22(1995$) = $5,522,000
Step 6. Subtract the results in Step 5 from that of Step 4, and divide the
result by NT to determine Purchase Price of Multiple Operating Weight (PM).
$7,730,524 - $5,522,000 = $2,208,524
PM = $2,208,524/ 15 aircraft
PM = $147,200 per aircraft (Rounded to nearest $100)
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2021-7
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Promotion Support
Reference: Purchase Agreement No. 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
Boeing agrees to make available to Customer [ ] for Customer's marketing and
promotion programs associated with the introduction of the Model 747-400F
Aircraft into service. These programs may include marketing research; tourism
development; corporate identity; direct marketing; video tape, or still
photography; planning, design and production of collateral materials; management
of promotion program and advertising campaigns.
Following the execution of this Letter Agreement, a Boeing Airline Promotion
representative will meet with Customer's designated representative to discuss
the extent, selection, scheduling, and funds disbursement process for the
program.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
--------------------------
Its Attorney-In-Fact
--------------------------
ACCEPTED AND AGREED TO this
Date: June 6, 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
--------------------------
Its CEO
--------------------------
P.A. No. 2021
Promotion Support
<PAGE> 64
6-1162-DSF-082
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Aircraft Performance Guarantees
Reference: Purchase Agreement No. 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
Boeing agrees to provide Customer with the performance guarantees in the
Attachment to this Letter Agreement. These guarantees are exclusive and expire
upon delivery of the Aircraft to Customer.
Customer agrees not to disclose this Letter Agreement, attachments, or any other
information related to this Letter Agreement without prior written consent by
Boeing.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
--------------------------
Its Attorney-In-Fact
--------------------------
ACCEPTED AND AGREED TO this
Date: June 6 , 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
--------------------------
Its CEO
--------------------------
P.A. No. 2021
Performance Guarantees
<PAGE> 65
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 1
MODEL 747-400 FREIGHTER PERFORMANCE GUARANTEES
SECTION CONTENTS
1 AIRCRAFT MODEL APPLICABILITY
2 FLIGHT PERFORMANCE
3 MANUFACTURER'S EMPTY WEIGHT
4 AIRCRAFT CONFIGURATION
5 GUARANTEE CONDITIONS
6 GUARANTEE COMPLIANCE
7 EXCLUSIVE GUARANTEES
<PAGE> 66
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 2
1. AIRCRAFT MODEL APPLICABILITY
The guarantees contained in this Attachment (the "Performance
Guarantees") are applicable to the 747-400 Freighter Aircraft
with a maximum takeoff weight of 875,000 pounds, a maximum
landing weight of 652,000 pounds, and a maximum zero fuel
weight of 610,000 pounds, and equipped with Boeing furnished
CF6-80C2B1F engines.
2. FLIGHT PERFORMANCE
2.1. Mission
2.1.1. Mission Payload
The payload for a stage length of 5,695 nautical miles in
still air (equivalent to a distance of 5,990 nautical miles
with a 25 knot tailwind, representative of a Taipei to Los
Angeles route) using the conditions and operating rules
defines below, shall not be less than the following guarantee
value:
NOMINAL: [ ]
TOLERANCE: [ ]
GUARANTEE: [ ]
Conditions and operating rules:
Stage Length: The stage length is defined as the sum of the
distances for the climbout maneuver, climb,
cruise, and descent.
Takeoff: The airport altitude is 72 feet.
The airport temperature is 84 degrees F.
The runway length is 12,008 feet.
The clearway is 984 feet.
The stopway is 197 feet.
<PAGE> 67
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 3
The runway slope is 0.08 percent downhill.
An Aircraft center of gravity location at the
most forward center of gravity limit.
Maximum takeoff thrust is used for the
takeoff.
The takeoff gross weight shall conform to FAA
Regulations.
Climbout Following the takeoff to 35 feet, the
Aircraft
Maneuver: accelerates to 250 KCAS while climbing to
1,500 feet above the departure airport
altitude and retracting flaps and landing
gear.
Climb: The Aircraft climbs from 1,500 feet above the
departure airport altitude to 10,000 feet
altitude at 283 KCAS.
The Aircraft then accelerates at a rate of
climb of 500 feet per minute to a climb speed
of 356 KCAS.
The climb continues at 356 KCAS until 0.84
Mach number is reached.
The climb continues at 0.84 Mach number to
the initial cruise altitude.
The temperature is ISA+10 degrees C during
climb.
Maximum climb thrust is used during climb.
Cruise: The Aircraft cruises at 0.84 Mach number.
The initial cruise altitude is 29,000 feet.
A step climb or multiple step climbs of
4,000 feet altitude may be used when
beneficial to minimize fuel burn.
<PAGE> 68
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 4
The temperature is ISA+10 degrees C during
cruise.
The cruise thrust is not to exceed maximum
cruise thrust except during a step climb
when maximum climb thrust may be used.
Descent The Aircraft descends from the final cruise
altitude at 0.84 Mach number until 280 KCAS
is reached.
The descent continues at 280 KCAS to an
altitude of 10,000 feet. At that altitude the
Aircraft decelerates to 250 KCAS.
The descent continues at 250 KCAS to an
altitude of 1,500 feet above the destination
airport altitude.
Throughout the descent, the cabin pressure
will be controlled to a maximum rate of
descent equivalent to 300 feet per minute at
sea level.
The temperature is ISA+10 degrees C during
descent.
Approach and The Aircraft decelerates to the final
Landing approach speed while extending landing gear
Maneuver: and flaps, then descends and lands.
The destination airport altitude is 126 feet.
Fixed For the purpose of this guarantee and for the
Allowances: purpose of establishing compliance with this
guarantee, the following shall be used as
fixed quantities and allowances:
Operational Empty Weight minus Tare,
OEW: 350,000 Pounds
Engine Start and Taxi-out:
Fuel 2,000 Pounds
Time 0.333 Hours
<PAGE> 69
Attachment to Letter Agreement
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Takeoff and Climbout Maneuver:
Fuel 3,230 Pounds
Distance 7 Nautical Miles
Approach and Landing Maneuver:
Fuel 800 Pounds
Taxi-in (shall be consumed from the reserve
fuel):
Fuel 1,000 Pounds
Time 0.167 Hours
Usable reserve fuel remaining upon completion
of the approach and landing maneuver: 30,000
Pounds
For information purposes, the reserve fuel is
based either on a minimum 30,000 pounds of fuel
or on a standard day temperature and a) a
contingency fuel allowance equivalent to 10%
percent of the trip time from a point 82 percent
of the stage length from the takeoff through the
completion of the approach and landing maneuver
at the destination airport, starting at the end
of the mission cruise at an LRC Mach number, b)
a missed approach and flight to a 100 nautical
mile alternate airport, c) an approach and
landing maneuver at the alternate airport, and
d) a 30 minute hold at 1,500 feet, whichever is
larger.
2.1.2. Mission Block Fuel
The block fuel for a stage length of 5,695 nautical miles in
still air (equivalent to a distance of 5,990 nautical miles
with a 25 knot tailwind, representative of a Taipei to Los
Angeles route) with a 205,910 pound payload using the
conditions and operating rules defined below, shall not be
more than the following guarantee value:
NOMINAL: [ ]
TOLERANCE: [ ]
GUARANTEE: [ ]
<PAGE> 70
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 6
Conditions and operating rules are the same as Paragraph 2.1.1
except as follows:
Block Fuel: The block fuel is defined as the sum of the
fuel used for taxi-out, takeoff and climbout
maneuver, climb, cruise, descent, approach
and landing maneuver, and taxi-in.
Takeoff: The airport altitude is 72 feet.
The takeoff
gross weight
is not
limited by
the airport
conditions.
Fixed Allowances: For the purpose of this guarantee and for
the purpose of establishing compliance with
this guarantee, the following shall be used
as fixed quantities and allowances:
Operational Empty Weight minus Tare,
OEW: 350,000 Pounds
Takeoff and Climbout Maneuver:
Fuel 3,210 Pounds
Distance 7 Nautical Miles
Usable reserve fuel remaining upon
completion of the approach and landing
maneuver: 30,000 Pounds
2.1.3. Mission Payload
The payload for a stage length of 4,626 nautical miles in
still air (equivalent to a distance of 4,277 nautical miles
with a 38 knot headwind, representative
<PAGE> 71
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 7
of an Anchorage to Taipei route) using the conditions and
operating rules defined below, shall not be less than the
following guarantee value:
NOMINAL: [ ]
TOLERANCE: [ ]
GUARANTEE: [ ]
Conditions and operating rules are the same as Paragraph 2.1.1
except as follows:
Takeoff: The airport altitude is 144
feet. The airport tempera-
ture is 55 degrees F. The
runway length is 10,899 feet.
The runway slope is 0.27
percent downhill.
Cruise: The initial cruise altitude
is 28,000 feet.
Approach and Landing Maneuver: The destination airport
altitude is 72 feet.
Fixed Allowances: For the purpose of this
guarantee and for the purpose
of establishing compliance
with this guarantee, the
following shall be used as
fixed quantities and allow-
ances:
Operational Empty Weight
minus Tare,
OEW: 350,000 Pounds
Takeoff and Climbout
Maneuver:
Fuel 3,250 Pounds
Distance 7 Nautical Miles
<PAGE> 72
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 8
Usable reserve fuel remaining
upon completion of the
approach and landing
maneuver: 30,000 Pounds
2.1.4. Mission Block Fuel
The block fuel for a stage length of 4,626 nautical miles in
still air (equivalent to a distance of 4,277 nautical miles
with a 38 knot headwind, representative of an Anchorage
to,Taipei route) with a 251,220 pound payload using the
conditions and operating rules defined below, shall not be
more than the following guarantee value:
NOMINAL: [ ]
TOLERANCE: [ ]
GUARANTEE: [ ]
Conditions and operating rules are the same as Paragraph 2.1.3
except as follows:
Block Fuel: The block fuel is defined as the sum of the
fuel used for taxi-out, takeoff and climbout
maneuver, climb, cruise, descent, approach
and landing maneuver, and taxi-in.
Takeoff: The airport altitude is 144 feet.
The takeoff gross weight is not
limited by the airport conditions.
Cruise: The initial cruise altitude is 31,000 feet.
Fixed Allowances: For the purpose of this guarantee and for
the purpose of establishing compliance with
this guarantee, the following shall be used
as fixed quantities and allowances:
<PAGE> 73
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 9
Operational Empty Weight minus Tare,
OEW: 350,000 Pounds
Usable reserve fuel remaining upon
completion of the approach and landing
maneuver: 30,000 Pounds
2.1.5. Mission Payload
The payload for a stage length of 4,516 nautical miles in
still air (equivalent to a distance of 3,915 nautical miles
with a 67 knot headwind, representative of a Taipei to Abu
Dhabi route) using the conditions and operating rules defined
below, shall not be less than the following guarantee value:
NOMINAL: [ ]
TOLERANCE: [ ]
GUARANTEE: [ ]
Conditions and operating rules are the same as Paragraph 2.1.1
except as follows:
Cruise: The initial cruise altitude is 28,000 feet.
Fixed Allowances: For the purpose of this guarantee and for
the purpose of establishing compliance with
this guarantee, the following shall be used
as fixed quantities and allowances:
Operational Empty Weight minus Tare, OEW:
350,000 Pounds
Takeoff and Climbout Maneuver:
<PAGE> 74
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 10
Fuel 3,230 Pounds
Distance 7 Nautical Miles
Usable reserve fuel remaining upon
completion of the approach and landing
maneuver: 30,000 Pounds
2.1.6. Mission Block Fuel
The block fuel for a stage length of 4,516 nautical miles in
still air (equivalent to a distance of 3,915 nautical miles
with a 67 knot headwind, representative of a Taipei to Abu
Dhabi route) with a 256,040 pound payload using the conditions
and operating rules defined below, shall not be more than the
following guarantee value:
NOMINAL: [ ]
TOLERANCE: [ ]
GUARANTEE: [ ]
Conditions and operating rules are the same as Paragraph 2.1.5
except as follows:
Block Fuel: The block fuel is defined as the sum of the
fuel used for taxi-out, takeoff and climbout
maneuver, climb, cruise, descent, approach
and landing maneuver, and taxi-in.
Takeoff: The takeoff gross weight is not, limited by
the airport conditions.
Cruise: The initial cruise altitude is 31,000 feet.
Fixed Allowances: For the purpose of this guarantee and for
the purpose of establishing compliance with
this guarantee, the following shall be used
as fixed quantities and allowances:
Operational Empty Weight minus Tare,
<PAGE> 75
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 11
OEW: 350,000 Pounds
Usable reserve fuel remaining upon
completion of the approach and landing
maneuver: 30,000 Pounds
2.1.7. Mission Payload
The payload for a stage length of 4,315 nautical miles in
still air (equivalent to a distance of 3,750 nautical miles
with a 66 knot headwind representative of an Hong Kong to
Bahrain route; using the conditions and operating rules
defined below, shall not be less than the following guarantee
value:
GUARANTEE: [ ]
Conditions and operating rules are the same as Paragraph 2.1.1
except as follows:
Takeoff: The airport altitude is 15 feet.
The airport temperature is 85 degrees F.
The runway length is 10,932 feet.
The clearway is 371 feet.
The following obstacle definition is
based on a straight-out departure
where obstacle height and distance are
specified with reference to
the liftoff end of the runway:
<PAGE> 76
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 12
Distance/Height
1. 10, 509 Feet 223 Feet
Cruise: The initial cruise altitude is 31,000
feet.
Approach and Landing Maneuver The destination airport altitude is and
6 feet.
Fixed Allowances: For the purpose of this guarantee and
for the purpose of establishing com-
pliance with this guarantee, the
following shall be used as fixed
quantities and allowances:
Operational Empty Weight minus Tare,
OEW: 350,000 Pounds
Takeoff and Climbout Maneuver:
Fuel 3,180 Pounds
Distance 7 Nautical Miles
Usable reserve fuel remaining upon
completion of the approach and landing
maneuver: 30,000 Pounds
2.1.8. Mission Block Fuel
The block fuel for a stage length of 4,315 nautical miles in
still air (equivalent to a distance of 3,750 nautical miles
with a 66 knot headwind, representative of an Hong Kong to
Bahrain route) with a 260,000 pound payload using the
conditions and operating rules defined below, shall not be
more than the following guarantee value:
<PAGE> 77
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 13
NOMINAL: [ ]
TOLERANCE: [ ]
GUARANTEE: [ ]
Conditions and operating rules are the same as Paragraph 2.1.7
except as follows:
Block Fuel: The block fuel is defined as the sum of the
fuel used for taxi-out, takeoff and climbout
maneuver, climb, cruise, descent, approach
and landing maneuver, and taxi-in.
Takeoff: The airport altitude is 15 feet.
The takeoff
gross weight
is not
limited by
the airport
conditions.
Fixed Allowances: For the purpose of this guarantee and for
the purpose of establishing compliance with
this guarantee, the following shall be used
as fixed quantities and allowances:
Operational Empty Weight minus Tare, OEW:
350,000 Pounds
Usable reserve fuel remaining upon
completion of the approach and landing
maneuver: 30,000 Pounds
3. MANUFACTURER'S EMPTY WEIGHT
The Manufacturer's Empty Weight (MEW) is guaranteed not to
exceed the value in Section 3-60-00 of Detail Specification
D019U002 plus one percent.
<PAGE> 78
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 14
4. AIRCRAFT CONFIGURATION
4.1. The guarantees contained in this Attachment are based on the
Aircraft configuration as defined in the original release of
Detail Specification D019U002 (hereinafter referred to as the
Detail Specification). Appropriate adjustment shall be made
for changes in such Detail Specification approved by the Buyer
and Boeing or otherwise allowed by the Purchase Agreement
which cause changes to the flight performance and/or weight
and balance of the Aircraft. Such adjustment shall be
accounted for by Boeing in its evidence of compliance with the
guarantees.
The Manufacturer's Empty Weight guarantee of Section 3 will be
adjusted by Boeing for the following in its evidence of
compliance with the guarantees:
(1) Changes to the Detail Specification including Change
Requests, Master Changes, Change Orders or any other changes
mutually agreed upon between the Buyer and Boeing or otherwise
allowed by the Purchase Agreement.
(2) The difference between the component weight allowances
given in Appendix IV of the Detail Specification and the
actual weights.
5. GUARANTEE CONDITIONS
5.1. All guaranteed performance data are based on the ICAO
International Standard Atmosphere (ISA) and specified
variations therefrom; altitudes are pressure
altitudes.
5.2. The FAA Regulations (FAR) referred to in this
Attachment are, unless otherwise specified, the
747-400 Certification Basis regulations specified in
the Type Certificate Data Sheet A20WE, Revision B,
dated June 8, 1989.
5.3. Requirement, or in the interpretation of any such
law, governmental regulation or requirement that
affects the certification basis for the Aircraft as
described in Paragraph 5.2, and as a result thereof,
a change is made to the configuration and/or the
performance of the Aircraft in order to obtain
certification, the guarantees set forth in this
<PAGE> 79
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 15
Attachment shall be appropriately modified to reflect any
such change.
5.4. The takeoff portion of the mission guarantees are based on
hard surface, level and dry runways with no wind or
obstacles, no clearway or stopway, 235 mph tires, with
anti-skid operative, and with the Aircraft center of gravity
at the most forward limit unless otherwise specified. The
takeoff performance is based on no engine bleed for air
conditioning or thermal anti-icing and the Auxiliary Power
Unit (APU) turned off. The improved climb performance
procedure will be used for takeoff as required.
5.5. The climb, cruise and descent portions of the mission
guarantees include allowances for normal power extraction
and engine bleed for normal operation of the air
conditioning system. Normal electrical power extraction
shall be defined as not less than a 100 kilowatts total
electrical load. Normal operation of the air conditioning
system shall be defined as pack switches in the "Normal"
position, the temperature control switches in the "Auto"
position that results in a nominal cabin temperature of
75 degrees F, and all air conditioning systems operating
normally. This operation allows a maximum cabin pressure
differential of 8.9 pounds per square inch, with a nominal
Aircraft cabin ventilation rate of 5,600 cubic feet per
minute including passenger cabin recirculation. The APU is
turned off unless otherwise specified.
5.6. The climb, cruise and descent portions of the mission
guarantees are based on an Aircraft center of gravity
location of 20 percent of the mean a aerodynamic chord.
5.7. Performance, where applicable, is based on a fuel Lower
Heating value (LHV) of 18,580 BTU per pound and a fuel
density of 6.75 pounds per U.S. gallon.
6. GUARANTEE COMPLIANCE
6.1. Compliance with the guarantees of Sections 2 and 3
shall be based on the conditions specified in those
sections, the Aircraft configuration of Section 4 and
the guarantee conditions of Section 5.
<PAGE> 80
Attachment to Letter Agreement
No. 6-1162-DSF-082
CF6-80C2BIF Engines
Page 16
6.2. Compliance with the takeoff portion of the mission
guarantees shall be based on the FAA approved
Airplane Flight Manual for the Model 747-400
Freighter.
6.3. Compliance with the climb, cruise and descent
portions of the mission guarantees shall be
established by calculations based on flight test data
obtained from an aircraft in a configuration 4,
similar to that defined by the Detail specification.
6.4. The OEW used for compliance with the mission
guarantees shall be the actual MEW plus the Standard
and Operational Items Allowance in Paragraph 3-60-0
of the Detail Specification.
6.5. Compliance with the Manufacturer's Empty Weight
guarantee shall be based on information in the
"Weight and Balance Control and Loading Manual
Aircraft Report."
6.6. The data derived from tests shall be adjusted as
required by conventional methods of correction,
interpolation or extrapolation in accordance with
established engineering practices to show compliance
with these guarantees.
6.7. Compliance shall be based on the performance of the
airframe and engines in combination, and shall not be
contingent on the engine meeting its manufacturer's
performance specification.
7. EXCLUSIVE GUARANTEES
The only performance guarantees applicable to the Aircraft are
those set forth in this Attachment.
<PAGE> 81
6-1162-DSF-083
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Certain Contractual Matters
Reference: Purchase Agreement No. 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
1. Basic Credit Memorandum.
In consideration of Customer's purchase of ten (10) firm Model
747-400F aircraft (Firm Aircraft), Boeing will issue a credit memorandum at time
of delivery of each Firm Aircraft to Customer in an amount equal to [ ] of the
Base Airframe Price (excluding special features, engines and BFE/SPE), expressed
in July 1995 dollars and subject to airframe escalation as described in Article
2.1.7 of the AGTA.
2. Customer Support Credit Memorandum.
In further consideration of Customer's purchase of the Firm
Aircraft, Boeing will issue a credit memorandum at delivery of each Firm
Aircraft to Customer in an amount equal to [ ] of the Base Airframe Price
(excluding special features, engines and BFE/SPE), expressed in July 1995
dollars and subject to airframe escalation as described in Article 2.1.7 of the
AGTA, for each of the Firm Aircraft.
3. [ ].
In further consideration of Customer's purchase of the Firm
Aircraft, Boeing will issue a credit memorandum at delivery of each Firm
Aircraft to Customer in an amount sufficient to offset the[ ], the [ ] and the [
] charges expressed in July 1995 dollars and subject to airframe escalation as
described in Article 2.1.7 of the AGTA. The amount of this credit memorandum
will be limited to [ ].
P.A No. 2021
Certain Contractual Matters
<PAGE> 82
6-1162-DSF-083
Page 2
4. [ ].
Notwithstanding the Advance Payment Schedule contained in Article 4.2 of
the Purchase Agreement, [ ]
<TABLE>
<CAPTION>
Due Date of Payment Amount Due per Aircraft
(Percentage times Advance Payment Base Price)
<S> <C> <C>
1998 1999 & later
Deliveries Deliveries
At Definitive Agreement
15 months prior to the first
day of the scheduled delivery
month of the aircraft
12 months prior to the first
day of the scheduled delivery
month of the aircraft
9 months prior to the first day
of the scheduled delivery month
of the aircraft
Total
</TABLE>
For each Aircraft Customer may elect to [ ] Advance Payments in accordance with
this Letter Agreement. Once an Advance Payment on a particular Aircraft has been
[ ], it will be assumed that all further Advance Payments on such Aircraft will
also be paid in accordance with the schedule above until Customer shall notify
Boeing otherwise.
P.A No. 2021
Certain Contractual Matters
<PAGE> 83
6-1162-DSF-083
Page 3
[ ] Amount is for any Aircraft, the amount equal to the
difference between the amount due according to the Advance Payment Schedule
pursuant to Article 4.2 of the Purchase Agreement and the amount due pursuant to
the [ ].
[ ] the sum of [ ]
for all Aircraft, less any [ ] paid.
Business Day is a day in which government offices and
financial institutions generally are open for business in the states of
Washington and New York. Interest on the [ ] will be charged at the fluctuating
rate of interest per annum equal to the six month London Interbank Offered Rate
(LIBOR) as published in the Wall Street Journal on the first business day of
each calendar quarter, plus two percent (2%).
5. Payment of Interest on [ ].
Interest will be paid on the first business day of each
calendar quarter by wire transfer to an account specified by Boeing . All
interest calculations will be computed on the basis of the actual number of days
elapsed and using a year of 360 days.
6. Conditions Precedent.
Paragraphs 4 and 5 of this Letter Agreement 6-1162-DSF-083
will become effective upon execution of said letter and upon execution
[ ] is satisfactory to Boeing.
7. Airframe Maintenance Cost Protection Program.
The standard price Boeing charges for a ten (10) year
Maintenance Cost Protection Program as described in Letter Agreement
6-1162-DSF-084 [ ] (95$ Subject to Escalation) per Aircraft. In consideration
of Customer's purchase of 10 firm Aircraft, Boeing will issue a credit
memorandum at delivery of each of the Firm Aircraft, to offset the charge.
8. Option Aircraft Matters.
8.1. The provisions of paragraphs 1, 3, 4, 5 and 6 of this
Letter Agreement will apply to up to ten (10) Option Aircraft when such Option
Aircraft are exercised by Customer.
P.A No. 2021
Certain Contractual Matters
<PAGE> 84
6-1162-DSF-083
Page 4
8.2. Notwithstanding Article 3.1 of Letter Agreement 2021-2,
Customer will pay a deposit to Boeing of [ ] for each Option Aircraft.(Deposit),
on the date of this Letter Agreement. If Customer exercises an option, the
Deposit will be credited against the first advance payment due. If Customer does
not exercise an option, Boeing will retain the deposit for that Option Aircraft.
9. Option Aircraft Delivery Flexibility.
Prior to the option exercise date for any option aircraft
contained in Letter Agreement 2021-2 to the Purchase Agreement, [ ]. Boeing
will, subject to available delivery positions and option exercise lead time
requirements, make reasonable efforts to accommodate Customer with a mutually
agreeable [ ].
10. Firm Aircraft Delivery Flexibility.
For Firm Aircraft delivering in 2000 and later, Customer may,
with eighteen (18) months notification,
[ ]. Boeing will, subject to available delivery positions, make reasonable
efforts to accommodate Customer with a mutually agreeable revised delivery
position. Customer may make such a change [ ].
11. Assignment of Credits.
The Credit Memoranda described in paragraphs 1 2, 3 and 4 of
this Letter Agreement are provided as a financial accommodation to Customer in
consideration of Customer becoming the operator of the Aircraft, and cannot be
assigned, in whole or in part, without the prior written consent of The Boeing
Company. [ ].
12. Airframe Maintenance Matters.
Boeing and Customer agree to jointly consider development of
airframe maintenance capability.
13. [ ].
Boeing offers to annually reimburse Atlas Air, Inc. (Customer)
for any increase in price for Boeing Model 747-400F [ ] will be made upon
resolution of the part number data submitted by Customer.
P.A No. 2021
Certain Contractual Matters
<PAGE> 85
6-1162-DSF-083
Page 5
[ ]
14. Application of Credit Memoranda.
Credit Memoranda issued to Customer pursuant to paragraphs 1,
2 and 3 above, may be used by Customer for the purchase from Boeing of Boeing
goods and services, or may be used (in whole or in part) by Customer for the
payment of the balance of the Aircraft Price due at the time of delivery of the
related Aircraft. The Credit Memoranda may not, however, be used to offset
payment of Advance Payments.
15. [ ].
[ ].
16. Performance Matters.
Pursuant to Letter Agreements 6-1162-DSF-082, 6-1162-DSF-084,
6-1162-DSF-086, 6-1162-DSF-095 and 6-1162-DSF-096, [ ].
17. Escalation Sharing.
Letter Agreement 2021-3 documents Boeing's commitment to share
escalation for Aircraft delivering in the years 1997 and 1998.
[ ].
18. Reconfirmation.
(a) Advance Payments. [ ]
(b) Request for Reconfirmation. Boeing may request that
Customer reconfirm its intent to take delivery of any Aircraft in its Scheduled
Delivery Month (Reconfirm) by sending to Customer a Reconfirmation Request Form
(Request) substantially in the form of the Attachment hereto, in the month
prior to but not less than ten (10) Business Days prior to the Reconfirmation
Date for the Aircraft. If Customer receives a Request, then Customer shall
Reconfirm in writing not later than three Business Days after the
Reconfirmation Date (the Reconfirmation Period) for the Aircraft.
Reconfirmation may be accomplished by countersigning and returning the Request
to Boeing. If Customer does not Reconfirm during the Reconfirmation Period,
then, without any act or notice required of Boeing, the Scheduled Delivery
Month for the Aircraft shall be deemed rescheduled as of the Reconfirmation
Date. Within ninety (90) days of the Reconfirmation Date Boeing shall notify
Customer of the Rescheduled Delivery Month, which month shall not be more than
24 months later than the Scheduled Delivery Month.
19. Confidential Treatment.
Customer understands that certain commercial and financial
information contained in this Letter Agreement are considered by Boeing as
confidential. Customer agrees that it will treat this Letter Agreement and the
information contained herein as confidential and will not, without the prior
written consent of Boeing, disclose this Letter Agreement or any information
contained herein to any other person or entity.
P.A No. 2021
Certain Contractual Matters
<PAGE> 86
6-1162-DSF-083
Page 6
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
--------------------------
Its Attorney-In-Fact
--------------------------
ACCEPTED AND AGREED TO this
Date: June 6 , 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
--------------------------
Its CEO
--------------------------
P.A No. 2021
Certain Contractual Matters
<PAGE> 87
Attachment to 6-1162-DSF-083
[Date]
[Letter No.]
ATLAS AIR, INC.
538 Commons Drive
Golden, Colorado 80401
Subject: Request for Reconfirmation
Reference is made to Purchase Agreement No. 2021 dated as of June 6, 1997 as
amended and supplemented (the Agreement), between The Boeing Company (Boeing)
and Atlas Air, Inc. (Customer). All terms used herein and in the Agreement, and
not defined herein, will have the same meaning as in the Agreement.
Boeing hereby requests that Customer reconfirm its intent to take delivery of
__ Block ___ Model 747-444F Aircraft scheduled for delivery in _____________.
Very truly yours,
THE BOEING COMPANY
By
--------------------------
Its
--------------------------
The undersigned, Atlas Air, Inc., hereby reconfirms its intent to take delivery
of the Aircraft referenced above.
Date: , 1997
ATLAS AIR, INC.
By
--------------------------
Its
--------------------------
P.A. No. 1910
<PAGE> 88
6-1162-DSF-084
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Aircraft Maintenance Cost Protection Program
Reference: Purchase Agreement 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends the Purchase Agreement and Exhibit C of the AGTA.
All terms used but not defined in this Letter Agreement have the same meaning as
in the Purchase Agreement and AGTA.
In consideration of Customer's purchase of the Aircraft and in response to
Customer's request for contractual assurances regarding Aircraft maintenance
costs, Boeing agrees to amend Exhibit C (Product Assurance Document) of the AGTA
to include the aircraft maintenance material cost protection program described
herein (the Program).
1. Scope.
1.1. Covered Aircraft.
The Program applies to each of the Aircraft while operated by Customer on
Customer's routes during the Program Term, as defined in paragraph 1.2 below,
(the Covered Aircraft).
1.2. Program Term.
The term of the Program will be 10 consecutive years commencing on the
first day of the calendar quarter in which the first Covered Aircraft is
delivered by Boeing to Customer (Program Term).
1.3. Covered Maintenance Work.
The Program applies to materials consumed in the maintenance of the
airframe and component elements of the Covered Aircraft which are included in
aircraft systems 5, 7 through 11, relevant sections of 12 and 20, 21 through 57,
71, and 73 through 80 (as defined in the Air Transport Association of America,
Specification No. 100,
P.A No. 2021
Maint Cost Protection
<PAGE> 89
Atlas Air, Inc.
6-1162-DSF-084
Page 2
"Specification for Manufacturer's Technical Data," dated 1984) when such
maintenance is performed in accordance with Customer's FAA approved maintenance
program and such materials are properly charged to the following work
descriptions:
(i) Scheduled Checks: All routine and required non-routine or corrective
maintenance performed by Customer during scheduled checks.
(ii) Non-scheduled Maintenance: All non-scheduled required maintenance.
(iii) Repair and Overhaul: Any required repair or overhaul of rotable or
repairable systems, accessories, equipment and parts.
(iv) Modifications: Modifications required to make changes recommended by
Boeing or Boeing suppliers pursuant to paragraphs 5.1 and 7.1 herein.
The Program applies only to the maintenance described above (Airframe
Maintenance) and does not apply to materials consumed with respect to Engines,
as defined in Exhibit EE1 to the Purchase Agreement.
2. Basic Definitions.
2.1. "Fleet," for any Reporting Period, means the number of Covered
Aircraft operated by Customer on Customer's routes during such Reporting Period.
2.2. "Fleet Hours," for any Reporting Period, means the total airborne time
(aircraft takeoff to touchdown) accumulated by the Covered Aircraft during such
Reporting Period.
2.3. "Reporting Period" is a 12 month period commencing on either the date
the Program Term commences or on an anniversary thereof.
3. Maintenance Material Cost Program Measures.
3.1. Airframe Maintenance Material Cost.
"Airframe Maintenance Material Cost" is the actual cost paid by Customer
for materials required to perform the Aircraft Maintenance, whether performed
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by Customer or by others for Customer, exclusive of any surcharges, taxes,
duties, tariffs, interest or other similar charges added to the manufacturer's
standard price.
3.2. Cumulative Average Reported Material Cost.
The "Cumulative Average Reported Material Cost" or "Average Reported Cost,"
for any Reporting Period, is calculated as the aggregate Airframe Maintenance
Material Cost for all then-completed Reporting Periods divided by the Fleet
Hours for all such completed Reporting Periods.
3.3. Target Material Cost.
The "Target Material Cost" for the Covered Aircraft for any Reporting
Period is the projected net cost to Customer for materials set forth in
paragraph 3.1 above where such Target will be expressed as a dollar value per
flight hour.
3.3.1. The Target Material Cost in year 1996 dollars is based on a
projected average airborne time per flight for the fleet of 9.0 hours (Projected
Average Flight Time), as follows:
<TABLE>
<CAPTION>
Reporting Reporting Reporting
Period 1 Period 2 Period 3
-------- -------- --------
<S> <C> <C> <C>
Target Material Cost [ ] [ ] [ ]
Reporting Reporting Reporting
Period 4 Period 5 Period 6
Target Material Cost [ ] [ ] [ ]
Reporting Reporting Reporting
Period 7 Period 8 Period 9
Target Material Cost [ ] [ ] [ ]
Reporting
Period 10
Target Material Cost [ ] [ ] [ ]
</TABLE>
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3.3.2. The Target Material Cost for any Reporting Period will be
adjusted for changes in material costs based on the following:
3.3.2.1 To reflect changes in inflation rates, the Target
Material Cost for such Reporting Period will be calculated by multiplying the
base Target Material Cost by the arithmetic average of the 12 monthly Producer
Price Indexes for "Aircraft parts and auxiliary equipment, n.e.c.," (Standard
Industrial Classification Code 3728) for such Reporting Period and dividing the
result by the arithmetic average of such Indices for the year 199X.
(The index described in this paragraph 3.3.2.1 will be obtained from the
publication "Producer Prices and Price Indexes" published by the U.S. Department
of Labor, Bureau of Labor Statistics or any comparable successor publication
published by the U.S. Department of Labor, Bureau of Labor Statistics or any
comparable successor agency).
3.3.2.2 If the actual average airborne time per flight for
the Fleet (Actual Average Flight Time) for any Reporting Period is different
from the Projected Average Flight Time of 9.0 hours, the Target Material Cost
for such Reporting Period will be adjusted to reflect such Actual Average
Flight Time for such Reporting Period in accordance with Attachment A to this
Program.
3.3.2.3 The Target Material Cost is based on (i) the number
of Covered Aircraft and the delivery schedule for such Covered Aircraft set
forth in the Agreement and (ii) a projected average utilization for the Covered
Aircraft during any Reporting Period of 5,100 flight hours. If the number of
Covered Aircraft or their delivery schedules are revised prior to or during the
Program Term as provided under or by amendment to the Agreement or the average
utilization for the Covered Aircraft during any Reporting Period exceeds 5,400
or is less than 4,800 flight hours, Boeing will have the right to revise the
Target Material Cost to reflect the impact of any such revisions or excess.
3.4. Cumulative Average Target Material Cost.
The "Cumulative Average Target Material Cost" or "Cumulative Average
Target Cost" as of any Reporting Period means (i) the sum of the products of
the Target Material Cost for each completed Reporting Period multiplied by the
Fleet Hours for
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each such completed Reporting Period (ii) divided by the total Fleet Hours for
all completed Reporting Periods.
4. Deficiency.
A "Deficiency" with respect to Airframe Maintenance Material Cost occurs
when the Cumulative Average Reported Cost for a Reporting Period exceeds [ ]% of
the Cumulative Average Target Cost as of such Reporting Period, all as may be
adjusted pursuant to the terms of the Program.
5. [ ]
5.1. If a [ ] exists, and Customer provides its reports to Boeing
pursuant to paragraph 6 herein, then Boeing will:
(i) [ ]
(ii) [ ]
[ ]
6. Administrative Requirements.
6.1. Customer will report to Boeing, within 90 days after the last day of
each Reporting Period, (i) the Cumulative Average Reported Cost broken down by
scheduled maintenance costs, non-scheduled maintenance costs, repair and
overhaul costs and modification costs, (ii) the Actual Average Flight Time for
the Fleet and (iii) the number of Covered Aircraft included in the Fleet.
Failure to file such reports within such 90 day period will constitute an
acknowledgment by Customer that there was no [ ] for that Reporting Period and
Boeing will not be obligated to provide any of the remedies arising under this
Program. However, if [ ] occurs, Customer will, within 90 days after the last
day of the applicable Reporting Period, report to Boeing the data identified
above for all then-completed Reporting Periods of the Program Term.
6.2. Customer's reports will include sufficient data to substantiate any
claimed [ ]. Upon request, Customer will submit to Boeing reasonable proof of
the existence of any Airframe Maintenance Material Cost claimed by Customer as
the basis of a Deficiency under the terms of this Program. Customer will
maintain and submit to Boeing such records, data and reports as may reasonably
be required to (i) determine cost elements
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of the Airframe Maintenance Material Cost, (ii) determine Cumulative Average
Reported Cost (broken down into the "work descriptions" set forth in paragraph
1.3 herein), (iii) identify the Fleet and calculate Fleet Hours, (iv) facilitate
the analysis of the problems causing any claimed Deficiency, (v) verify the
Actual Average Flight Time and (vi) when required, facilitate development of
appropriate remedial action with respect to any claimed Deficiency.
6.3. Customer will, if requested by Boeing, furnish, from time to time,
such additional information as is reasonably necessary to monitor the Program or
investigate any claimed Deficiency.
6.4. All reports submitted to Boeing will be addressed to the attention of:
Director - Warranties
Boeing Commercial Airplanes
P.O. Box 3707
Seattle, Washington 98124-2207
7. Conditions and Limitations.
7.1. If Boeing or any Boeing supplier issues no-charge service bulletins or
service bulletins with no-charge retrofit kits which would reduce Airframe
Maintenance Material Cost, Customer will make any changes recommended by such
service bulletins and install such retrofit kits within 240 days after issuance
of such instructions or receipt of such kits at Customer's facility, or such
longer period as may be mutually agreed by the parties. In the event of
Customer's failure to comply with the time requirements of this paragraph 7.1,
all Airframe Maintenance Material Cost which would have been eliminated if such
service bulletins or retrofit kits had been incorporated, as determined by
Boeing, will be subtracted from Cumulative Average Reported Cost reported after
expiration of such time requirements.
7.2. Customer will promptly notify Boeing in writing of any existing or
contemplated variations in its maintenance cost accounting system or procedures
which affect or would affect the proper reporting of Airframe Maintenance
Material Cost. Boeing will have the right to adjust the Cumulative Average
Target Cost and the definition for Airframe Maintenance Material Cost to reflect
the effect of any such variations.
7.3. Boeing will have the right to audit and investigate all costs charged
by Customer to the "Work Descriptions" listed in paragraph 1.3 herein, as well
as the mainte-
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enance practices and procedures related thereto, at any reasonable time during
the Program Term. Boeing will also have the right to disapprove costs improperly
charged to such Work Descriptions. Boeing will provide Customer with written
notification of its disapproval of any such costs, and if Customer does not
provide proof that such costs are properly chargeable to such Work Descriptions
within 60 days after such notification, Boeing and Customer will determine the
amount to be deducted from the computation of the Average Reported Cost.
7.4. Boeing will have the right at all reasonable times to inspect and
review Customer's maintenance facilities, programs and procedures. If Boeing
recommends in writing reasonable changes in Customer's maintenance programs and
procedures which would reduce the Average Reported Cost and offers reasonable
proof that such changes will reduce such costs and Customer does not effect such
changes or Customer delays effecting such changes beyond the period set forth in
paragraph 7.1 herein, Boeing will have the right to adjust the Cumulative
Average Target Cost to reflect the increased costs which Boeing estimates will
result from Customer's failure or delay in effecting such changes.
7.5. The Airframe Maintenance Material Cost will not include the following:
costs arising from loss of, or damage to, any Covered Aircraft, or any
accessory, equipment or part thereof; any taxes, duties, tariffs, surcharges,
transportation, interest or overhead; the cost of initial or sustaining spare
parts or the depreciation of such spare parts; costs resulting from any
modification to the Covered Aircraft or any equipment, accessory or part thereof
other than modifications described under paragraph 1.3(iv) herein; costs
resulting from the negligent acts or omissions of Customer; costs resulting from
the improper operation, service, maintenance or overhaul of any Covered
Aircraft, or any system, accessory, equipment or part thereof; costs
attributable to loss of use, revenue or profit; costs of consumable fluids,
including fuel; costs due to acts of God, war, warlike operations,
insurrections, riots, fires, floods, explosions, accidents, epidemics or
quarantine restrictions; costs due to Government priorities, allocation
regulations or orders which affect materials or facilities needed for the
maintenance of Covered Aircraft; costs due to strikes or labor troubles causing
cessation, slowdown or interruption of work related to the maintenance of
Covered Aircraft; delay in transportation or inability to procure materials,
accessories, equipment or parts needed for the maintenance of Covered Aircraft;
or any other costs not included in Airframe Maintenance Material Cost as defined
in paragraph 3.1 herein.
7.6. Customer's Cumulative Average Reported Cost as of any Reporting Period
will be reduced by any of the following items to the extent that such items have
been included as part of such Cumulative Average Reported Cost:
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(i) the price for any part provided by Boeing or Boeing's
suppliers to Customer at no charge,
(ii) an amount equal to the difference between the
reported price for any part and the reduced price for such part as provided by
Boeing or Boeing's suppliers to Customer,
(iii) the amount of any credit memorandum or other payment
scheme, established in Customer's favor, related to the materials involved in
any warranty, maintenance material cost guarantee or similar agreement and
issued by Boeing or Boeing suppliers to Customer.
7.7. The Program will be suspended if during any Reporting Period the
average utilization for the Covered Aircraft is below 1,400 flight hours. Once
the average utilization for the Covered Aircraft exceeds the minimum average
utilization set forth above during any subsequent Reporting Period, the Program
will be resumed commencing on the first day of such subsequent Reporting Period.
Customer's report of Cumulative Average Reported Cost as of any Reporting Period
during the Program Term will exclude all Airframe Maintenance Material Cost
incurred and Fleet Hours accumulated by Customer during any Reporting Period in
which the Program was suspended as provided above. The Program will not be
extended to reflect any period wherein it was suspended.
7.8. At Boeing's request, Customer will assign to Boeing, any of Customer's
rights against the manufacturer of any equipment, accessory or part installed in
the Covered Aircraft as Boeing may reasonably require to fulfill its obligations
with respect to any remedy provided by Boeing hereunder.
7.9. THIS LETTER AGREEMENT AND THE RIGHTS AND REMEDIES OF CUSTOMER AND
OBLIGATIONS OF BOEING HEREIN ARE SUBJECT TO THE DISCLAIMER AND RELEASE AND
EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES PROVISIONS OF ARTICLE 12 OF THE
AGREEMENT.
For the purpose of this paragraph, the term "Boeing" means The Boeing Company,
its division, subsidiaries and affiliates, the assignees of each, and their
directors, officers, employees and agents.
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8. Covered Aircraft Configuration.
The target material cost set forth in this Program is based on the
configuration for the Covered Aircraft as set forth in Detail Specification
D-TBD dated TBD (Exhibit A to the Purchase Agreement). Such target material cost
may be equitably adjusted by mutual agreement to appropriately reflect any
changes to the actual configuration of the Covered Aircraft at the time of
delivery thereof to Customer. Equitable adjustments to such target material cost
may also be made by mutual agreement at any time during the Program Term to
reflect any additional changes in the configuration of the Covered Aircraft.
9. Duplicate Product Assurance Remedies.
It is agreed that Boeing will not be obligated to provide to Customer any
remedy under this Program which is a duplicate of any other remedy which has
been provided to Customer under any Part of Exhibit C (Product Assurance
Document) to the AGTA.
10. Confidential Treatment.
Customer understands that certain commercial and financial information
contained in this Letter Agreement and attachment(s) hereto are considered by
Boeing as confidential. Customer agrees that it will treat this Letter Agreement
and the information contained herein as confidential and will not, without the
prior written consent of Boeing, disclose this Letter Agreement or any
information contained herein to any other person or entity.
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If the foregoing correctly sets forth your understanding of our agreement with
respect to the matters treated above, please indicate your acceptance and
approval below.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
------------------------
Its Attorney-In-Fact
------------------------
ACCEPTED AND AGREED TO this
Date: June 6, 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
-----------------------
Its CEO
-----------------------
Attachments
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Attachment A to
Letter Agreement
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Actual Average Flight Time Adjustment
TMC for AAFT = TMC for PAFT x ( .65/AAFT + .35)
(.65 /PAFT + .35)
Where TMC = Target Material Cost
Where AAFT = Actual Average Flight Time
Where PAFT = Projected Average Flight Time
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6-1162-DSF-085
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Open Configuration Matters
Reference: Purchase Agreement 2021 (the Purchase Agreement) between The Boeing
Company (Boeing) and Atlas Air, Inc. (Customer) relating
to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends the Purchase Agreement. All terms used but not
defined in this Letter Agreement have the same meaning as in the Purchase
Agreement.
1. Aircraft Configuration.
1.1. Initial Configuration. The initial configuration of Customer's Model
747-400F Aircraft has been defined by Boeing Model 747-400 Freighter Airplane
Configuration Specification D019U002 as described in Article 1 and Exhibit A of
the Purchase Agreement (the Aircraft Configuration). Given the long period of
time between the Purchase Agreement signing and delivery of the first Aircraft,
Customer may have the desire to incorporate certain configuration changes
(Options) into the Aircraft Configuration.
1.2. Final Configuration Schedule. No later than 12 months prior to the
first Aircraft's scheduled delivery month, Boeing and Customer will discuss
potential Options. By May 16, 1997, Boeing will provide Customer with Option
proposals for those configuration changes that can be incorporated in Aircraft
production. By June 6, 1997, Customer will accept or reject these Options.
2. Effect on Purchase Agreement.
2.1. Basic Specification. Changes applicable to the basic Model 747-400F
aircraft which are developed by Boeing between the date of signing of the
Purchase Agreement and completion of the final configuration review described in
paragraph 1.2 above will be incorporated into the Aircraft Configuration by
written amendment.
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2.2. Exhibit A. The effects of all Options which are mutually agreed upon
between Boeing and Customer for incorporation into the Aircraft Configuration
will be incorporated into Exhibit A of the Purchase Agreement by written
amendment.
2.3. Performance Guarantees. Within 60 days after Customer's acceptance of
any Options, Boeing will provide to Customer revisions to the Performance
Guarantees to reflect the effects, if any, of the incorporation of such Options
on Aircraft performance. Such revisions will be incorporated by written
amendment.
2.4. Price Adjustments. The Aircraft Basic Price and Advance Payment Base
Price of each Aircraft included the amount of United States [ ] (95$) as an
estimate of the value of the Options which may be accepted and included in the
final Aircraft Configuration. The Aircraft Basic Price and the Advance Payment
Base Price of each Aircraft will be increased or decreased as required to
reflect the difference between such estimate and the actual prices plus any
required Seller Purchased Equipment, of the Options accepted by Customer.
3. Purchase Agreement Amendment.
Within 30 days after reaching agreement as to the final Aircraft
Configuration, Boeing will provide Customer an amendment to the Purchase
Agreement reflecting the effects of the configuration changes agreed to by the
parties.
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Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
----------------------
Its Attorney-In-Fact
----------------------
ACCEPTED AND AGREED TO this
Date: June 6, 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
----------------------
Its CEO
----------------------
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6-1162-DSF-086
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Remedy for Deviation from Fuel Burn Objective for
Model 747-400F Aircraft
Reference: Purchase Agreement No. 2021 (the Purchase Agreement)
between The Boeing Company (Boeing) and Atlas Air Inc.
(Customer) relating to Model 747-400F Aircraft (the
Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
Letter Agreement 6-1162-DSF-082 contains performance guarantees (the Performance
Guarantees) which include tolerances of [ ] from nominal levels for the block
fuel described in Paragraph 2.1.2 of the Performance Guarantees (the Block Fuel
Guarantee). Customer has requested that Boeing [ ].
In response to Customer's request, Boeing [ ] in the event that fuel burn
performance exceeds nominal block fuel performance as specified in paragraph
2.1.2 of the Attachment to Letter Agreement 6-1162-DSF-082 [ ].
1. Demonstration of Compliance.
Article 5.4 of the Aircraft General Terms Agreement AGTA-TLS between Boeing
and Customer (AGTA-TLS) provides a procedure for demonstration of compliance
with all performance guarantees prior to delivery. That same procedure will be
used to demonstrate compliance with [ ] which, if not met, will result in
economic remedies as described below.
2. Rights and Obligations in the Event the Aircraft [ ].
2.1. Aircraft Delivery.
In the event any Model 747-400F Aircraft, at the time of tender by Boeing
for delivery to Customer fails to comply with [ ], Cus-
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tomer shall not refuse to accept delivery of such Aircraft on account of such
noncompliance, subject to the terms and conditions hereinafter set forth.
2.2. Correction of Noncompliance with [ ].
2.2.1. To the extent economically and technically practicable, Boeing
will use its best reasonable efforts to design or cause to be designed, changes
to the Model 747-400F Aircraft which would diminish or correct the failure of
the Model 747-400F Aircraft to comply with [ ]. Such changes
shall hereinafter be called "Changes".
2.2.2. In the event Boeing develops or causes to be developed Changes
which Boeing believes are economically and technically practicable, Boeing will
promptly furnish such Changes at [ ] to Customer for each Model 747-400F
Aircraft. Such Changes shall be in the form of retrofit parts and/or
modification instructions. Boeing will also [ ] any direct labor reasonably
expended by Customer to incorporate such Changes. Such reimbursement shall be on
the basis of Boeing's [ ] then in effect with Customer.
2.2.3. Boeing shall not be obligated to furnish any Changes in
addition to those necessary to cause the Model 747-400F Aircraft to comply with
[ ].
2.3. Remedy for Non-Compliance with [ ].
2.3.1. In the event that Boeing has not, within one year after the
delivery of any Model 747-400 Aircraft which failed at the time of delivery to
comply with the [ ], designed or caused to be designed and
delivered to Customer, Changes as defined in Paragraph 2.2.1 above, [ ]
escalation in accordance with the provisions of Exhibit D to the AGTA as such
provisions are applied to the Airframe for the Aircraft. [ ] for
any portion of the deficiency corrected by Changes for that portion of the
preceding year subsequent to the delivery of such Changes to Customer.
2.3.2. [ ] above shall be [ ] by Boeing. In no
event shall the total, [ ] Customer pursuant to Paragraphs
2.3.1 above exceed [ ] for each Aircraft. Should an examination of
Customer's actual usage of the subject Aircraft indicate that the values used in
calulat-
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ting [ ] were excessive, Customer agrees to an adjustment in
[ ] accordingly.
2.3.3. The amount of performance improvement attributable to any Change
shall be determined by analysis based on data supplied by Boeing and certified
to be correct by Boeing. The amount of such improvement shall be deemed to be
the amount of performance improvement, stated in terms of Block Fuel, as
calculated using reasonable engineering interpretations and calculations based
on the data furnished pursuant to Article 5.4 of the AGTA-TLS and the data
furnished pursuant to this Paragraph 2.3.3.
3. [ ].
[ ] under this Letter Agreement shall be as a result of
operation of the Aircraft by Customer.
4. Confidential Treatment.
Customer understands that certain commercial and financial information
contained in this Letter Agreement, and any attachments hereto, is considered by
Boeing as confidential. Buyer agrees that it will treat this Letter Agreement
and the information contained herein as confidential and will not, without the
prior written consent of Boeing, disclose this Letter Agreement or any
information contained herein to any other person or entity.
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Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
------------------------
Its Attorney-In-Fact
------------------------
ACCEPTED AND AGREED TO this
Date: June 6, 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
------------------------
Its CEO
------------------------
<PAGE> 106
Attachment to
6-1162-DSF-086
Page 1
[ ]
(CALENDAR YEARS 1999 AND ON)
(a) [ ] to be used for calculation of the remedy amount
which is due and payable for the calendar year 1998 and each
subsequent year shall be determined using the following equation:
[ ]
(b) The following definitions shall apply herein:
[ ]
Ca = The index of Commercial Jet fuel, Kerosene Base as
reflected in the Bureau of Labor Statistics, U.S.
Department of Labor "Producer Price Indexes" (Commodity
Code 05720301) for each month of the desired year of
Adjusted Remedy Value and calculated as an average value
for such year.
53.4 = The index of Commercial Jet fuel, Kerosene Base as
reflected in the Bureau of Labor Statistics, U.S.
Department of Labor "Producer Price Indexes" (Commodity
Code 05720301) for the month of July 1995 (1982 = 100).
TR = Customer's effective Corporate tax rate in effect at time
of [ ].
(c) In addition it is understood that at the time of [ ] calculation,
Boeing may be unable to determine the precise amount of such value
because the applicable fuel index used to determine Ca may not be
released by the Bureau of Labor Statistics, or if released, it may be
adjusted at a later date by such Bureau. Accordingly, the parties agree
as follows:
(i) The commercial jet fuel index to be used in calculating the [ ]
will be determined by utilizing the escalation provisions set
forth above. The most current Bureau of Labor Statistics for the
applicable month (including those noted as preliminary by the
Bureau of labor statistics) and available to
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Attachment to
6-1162-DSF-086
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Boeing at the time the escalation calculation is made shall be
used to calculate [ ]. If no value has been released for the
applicable year, the "preliminary" values first available for
the nearest preceding months will be used.
(ii) Subsequent to calculation of the [ ], Boeing may from time
to time make adjustments to the value of the commercial jet
fuel index for such [ ] to reflect any changes in index
previously used to determine such [ ]. If the U.S.
Department of Labor revises any previously released index
value by removing or replacing such index, or by describing
such revision by footnote appendix or by any other method,
the revised value shall be used to revise the value of the
[ ]. Such adjustment(s) by Boeing, if any, shall be made
within 12 months thereafter.
(iii) If the U.S. Department of Labor substantially revises the
methodology (in contrast to benchmark adjustments or other
corrections of previously released data) or discontinues
publishing the commercial jet fuel index, the parties shall
select a substitute for the revised or discontinued
commercial jet fuel index, such substitute to lead in
application to the same adjustment result, insofar as
possible, as would have been achieved by continuing the use
of the original as it may have fluctuated had it not been
revised or discontinued. Appropriate revision of the formula
shall be made to accomplish this result. In the event
escalation provisions are made non enforceable or otherwise
rendered null and void by any agency of the United States
Government, the parties agree, to the extent they may
lawfully do so, to equitably adjust the price of any
affected ARV to reflect an allowance for increases in the
commercial jet fuel price.
NOTE: Any rounding of a number, as required under this Attachment
with respect to escalation of [ ], shall be accomplished as
follows: If the first digit of the portion to be dropped
from the number to be rounded is five or greater, the
preceding digit shall be raised to the next higher number.
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No. 6-1162-DSF-098
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Taxes - Boeing Opinion
Reference: Purchase Agreement No. 2021 (the Purchase Agreement)
between The Boeing Company (Boeing) and Atlas Air
Inc.(Customer) relating to Model 747-400F Aircraft
(the Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
This letter has been prepared in response to Customer's concern with regard to
applicability of United States and Washington State taxes to the purchase by
Customer of the Aircraft. Boeing has agreed to furnish to Customer an opinion
regarding the imposition of any State of Washington or United States sales and
use taxes with respect to the sale and purchase of the Aircraft under the
Purchase Agreement. The following are Boeing's opinion and shall not serve as a
substitute for the advice of Customer's legal counsel.
1. Sale in State of Washington.
It is assumed and understood for purposes of this opinion, that the
delivery of the Aircraft is to be made to Customer in the State of Washington,
that title to the Aircraft will be either (i) transferred directly from Boeing
to Customer, and that the Aircraft is to be used by Customer in interstate and
foreign commerce for the transportation of property and persons for hire or (ii)
will be purchased by Customer or Customer's assignee solely for the purpose of
resale or lease, such resale or lease being in the regular course of Customer's
or Customer's assignee's business.
Present Washington law exempts from the Washington State sales tax any:
"Sales of airplanes ... for use in conducting interstate or foreign commerce by
transporting therein or therewith property and persons for hire ...; component
part of such airplanes ... in the course of constructing, repairing, cleaning,
altering, or improving the same ..." RCW 82.08.0262.
Present Washington law also exempts from the Washington State use tax:
"The use of any airplane ... used primarily in conducting interstate or foreign
commerce by trans-
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porting therein or therewith property and persons for hire ... and in respect to
use of tangible personal property which becomes a component part of any such
airplane ..." RCW 82.12.0254.
By its definition, present Washington Law exempts from Washington State
Sales Tax: "Sales to a person who ... purchases for the purpose of resale as
tangible personal property in the regular course of business without intervening
use by such person...." RCW 82.04.050.
Based on the foregoing, Boeing is of the opinion that under present law,
if the Exemption Certificate required by the rules of the Washington State Tax
Commission is given by Customer to Boeing, the sale of the Aircraft by Boeing
to Customer will not be subject to Washington sales or use tax, and Boeing need
not collect from Customer either a Washington sales tax or a Washington use tax
as a result of such sale.
As of the date of this opinion, Boeing is not aware of any implemented or
pending Washington State legislation that will impose a sales, use, value added
or similar transfer tax on the Aircraft within the period contemplated for
delivery of the Aircraft.
2. United States Taxes.
As of the date of this opinion, under present United States law, the sale,
and use of aircraft are not subject to taxes nor is Boeing aware of any
implemented or pending legislation which will impose a sales, use, value added
or similar transfer tax on the Aircraft within the period contemplated for
delivery of the Aircraft.
Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
----------------------
Its Attorney-In-Fact
----------------------
P.A. 2021
Taxes
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Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
Subject: Special Purchase Agreement Provisions
Reference: Purchase Agreement No. 2021 (the Purchase Agreement) between
The Boeing Company (Boeing) and Atlas Air, Inc. (Customer)
relating to Model 747-400F aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase Agreement. All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
1. Special Provisions.
Boeing and Customer agree that the following provisions shall
apply in lieu of the provisions currently contained in the Purchase Agreement:
1.1. Article 8.2.1 to AGTA-TLS, Insurance Requirements is
revised in its entirety to read: "The Customer will purchase and maintain
insurance [ ], and provide a certificate of such insurance that names Boeing as
an additional insured for any and all claims and liabilities for injury to or
death of any person or persons, including employees of Customer but not
employees of Boeing, or for loss of or damage to any property, including any
aircraft, arising out of or in any way relating to Materials, Training, Services
or other things provided under Exhibit B of the AGTA, which will be incorporated
by reference into the applicable purchase agreement whether or not arising in
tort or occasioned by the negligence of Boeing, except with respect to legal
liability to persons or parties other than Customer or Customer's assignees
arising out of an accident caused solely by a product defect in an aircraft.
Customer will provide such certificate of insurance at least thirty (30) days
prior to the scheduled delivery of the first aircraft under a purchase
agreement. The insurance certificate will reference each aircraft delivered to
Customer pursuant to each applicable purchase agreement. Annual renewal
certificates will be submitted to Boeing before the expiration of the policy
periods. The form of the insurance certificate, attached as Appendix I, states
the terms, limits, provisions and coverages required by this Article 8.2.1. The
failure of Boeing to demand compliance with
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this 8.2.1 in any year will not in any way relieve Customer of its obligations
hereunder nor constitutes a waiver by Boeing of these obligations."
1.2. Exhibit A to AGTA-TLS, Buyer Furnished Equipment
Provisions Document, - Customer's configuration currently contains no items of
BFE. Should the configuration change to include any BFE, the Boeing BFE process
in place at that time will be the subject of discussion and negotiation between
Boeing and Customer.
1.3. Exhibit C to AGTA-TLS, Product Assurance Document, part
2, Article 4.5, Maximum Reimbursement is revised in its entirety to read:
"Unless previously agreed, the maximum reimbursement for Direct Labor and Direct
Materials used to Correct a defective Boeing Product will not exceed 65% of
Boeing's then-current sales price for a new replacement Boeing Product plus the
Direct Labor to remove and reinstall such Product."
1.4. Exhibit C to AGTA-TLS, Product Assurance Document, Part
2, Article 8.3.2, is revised in its entirety to read: "If Customer has a
critical parts shortage because Boeing has exceeded a Correction time objective
and Customer has procured spare Boeing Products for the defective Boeing Product
in quantities shown in Boeing's Recommended Spare Parts List (RSPL), [ ], then
Boeing will either expedite the Correction or provide a similar Product on a no
charge loan or lease basis until a Corrected Boeing Product is returned."
1.5. Letter Agreement 2021-1, paragraph 7, Customer's
Indemnification of Boeing, is revised in its entirety to read: "[ ] except as
provided in Article 8.1.1 of AGTA-TLS, Customer will indemnify and hold harmless
Boeing from and against all claims and liabilities, including costs and expense
(including attorneys' fees) incident thereto or incident to successfully
establishing the right to indemnification, for injury to or death of any person
or persons, including employees of Customer but not employees of Boeing, or for
loss of or damage to any property, including Aircraft (but not the Aircraft
before delivery), arising out of or in any way connected with any nonconformance
or defect in any SPE and whether or not arising in tort or occasioned in whole
or in part by the negligence of Boeing. This indemnity will not apply with
respect to any nonconformance or defect caused solely by Boeing's installation
of the SPE."
1.6. Exhibit C to AGTA-TLS, Part 2, Article 4.4, Credit Memo
Reimbursement, is revised in its entirety to read: "Boeing will make
reimbursements by credit
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memoranda which may be applied toward the purchase of Boeing goods and services.
[ ].
[ ]
1.8. Letter Agreement 2021-5, paragraph 7.5, Price and Payment, is revised
in its entirety to read: "The price of each provisioning item repurchased by
Boeing pursuant to this paragraph 7 will be an amount equal to 100% of the
original invoice price thereof. In the case of Provisioning Items manufactured
by a vendor which were purchased pursuant to Paragraph 4, the repurchase price
will not include Boeing's 12% handling charge. Boeing will pay the repurchase
price by issuing a credit memorandum in favor of Customer which may be applied
against amounts due Boeing for the purchase of aircraft, Spare Parts, services
or the licensing of data, [ ].
2. Confidential Treatment.
Customer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Customer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity.
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Very truly yours,
THE BOEING COMPANY
By /s/ Dawn S. Foster
----------------------
Its Attorney-In-Fact
----------------------
ACCEPTED AND AGREED TO this
Date: June 6 , 1997
ATLAS AIR, INC.
By /s/ M.A. Chowdry
----------------------
Its CEO
----------------------
Attachment
[ ]
P.A. No. 2021
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 14, 1997
included in Atlas Air, Inc.'s Form 10-K for the year ended December 31, 1996
and to all references to our firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
November 5, 1997
